OREANDA-NEWS. November 17, 2015. Fitch Ratings has affirmed Russian Tver Region's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB-', Short-term foreign currency IDR at 'B' and National Long-term rating at 'A+(rus)'. The Outlooks on the Long-term ratings are Stable. The region's outstanding senior unsecured domestic bonds have been affirmed at 'BB-' and 'A+(rus)'.

The affirmation and Stable Outlook reflect Fitch's unchanged baseline scenario regarding Tver's stable budgetary performance and moderate direct risk over the medium term.

KEY RATING DRIVERS
The ratings reflect the consolidation of Tver's operating performance at a satisfactory level after a period of high volatility, as well as moderate debt and negligible contingent risk. The ratings also factor in our expectation of a slowdown of economic activity in the region following the negative national trend.

Fitch projects Tver's operating margin will remain satisfactory at 5%-6% in 2015-2017 (averaged 0.9% in 2011-2014) reflecting the administrations' successful cost-cutting efforts amid moderately growing revenues. Fitch expects the region's tax proceeds will increase by 3% yoy in 2015 driven by the growing income of the electric power generation sector and the higher collection of property tax that will offset modest decline in excise duties.

Based on the 9M15 budget execution, Fitch expects the region's deficit before debt variation to narrow to 3.2% of total revenue from average 9.6% in 2011-2014. The deficit shrinkage will be supported by cutbacks in capital expenditure and continuous control over opex. Fitch therefore projects the growth of direct risk will decelerate in 2015-2017, allowing it to stabilise at 65% of current revenue (2014: 62.7%). The region has no outstanding guarantees and public sector entities' debt is negligible.

Like most Russian regions, Tver is exposed to significant refinancing pressure. In 2015-2017 the region faces 86% repayment of total direct risk. By end-2015, the region has to refinance RUB3.5bn of bonds amortisation, which corresponds to 12% of direct risk. This will be covered by a portion of liquidity cushion (RUB5.5bn as of 1 October 2015) and the recently contracted RUB1bn bank loan.

The region has a diversified industrial sector represented by electric power generation, machine building and engineering, drinks bottling and transport. The local economy has a negative population trend due to the social gravity of nearby developed cities - St. Petersburg and Moscow. Tver's economic profile is modest and its GRP per capita was 17% below the national median in 2013. In 2014, Tver's GRP grew by 0.4% yoy, which was below the national growth of 0.6%. Fitch expects national GDP to shrink by 4% yoy in 2015 placing a strain on the region's economic performance.

RATING SENSITIVITIES
Improvement of operating balance towards 10% of operating revenue coupled with debt coverage ratio (direct risk to current balance) at around 10 years on a sustainable base could lead to an upgrade.

The inability to maintain a positive operating balance on a sustained basis or an increase in direct risk above 80% of current revenue could lead to a downgrade.