OREANDA-NEWS. Fitch Ratings has affirmed the Russian Ural Federal University (UrFU) Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB', a National Long-term rating at 'AA-(rus)' and a Short-term foreign currency IDR at 'B'. The Outlooks on the Long-term ratings are Negative, reflecting that on the sovereign (Russian Federation; BBB-/Negative).

The affirmation reflects UrFU's unchanged legal status, which implies a strong link with its sponsor (Russian Federation), and continuously strong reliance on public funding.

KEY RATING DRIVERS
Fitch has classified UrFU as a credit-linked public-sector entity under its public-sector criteria. The two-notch difference between UrFU and its sponsor is a result of the university's moderate integration into the federal budget and the fact that the higher education is a discretionary responsibility of the federal government. Thus, Fitch considers strategic importance a moderately supportive factor for UrFU.

UrFU was created through the decree of the federal government, and is one of the 10 federal universities in Russia. UrFU is located in the City of Ekaterinburg, the capital of Sverdlovsk region, which is part of the Ural federal district.

UrFU's legal status of state-owned autonomous establishment implies strong control from the federal government. The latter controls UrFU's activity and property management and closely monitors the use of public funding. The state also approves all large-scale transactions - all purchases for cash and all borrowing over 10% of the total assets' book value - through a supervisory board.

Fitch expects the proportion of public funding will remain sound and stable over the medium term, accounting for around 60% of university's operating revenue. UrFU strongly relies on public funding, and its financial performance is largely supported by state grants. In 2014, public funding accounted for more than 60% of UrFU's operating revenue supporting the improvement of its operating balance. Overall, UrFU is a non-for-profit organisation and aims at breakeven.

The majority of current grants from the state (around 70%) is earmarked for education service delivery. The remainder is used to finance research activity and social events. The bulk of UrFU's investment needs are financed through state grants as well. UrFU continues to develop its own revenue base, which mostly comprises tuition fees and income from research activity.

According to Fitch's base case scenario, UrFU will not incur debt financing over the medium term maintaining its debt-free status. As of end-2015, UrFU was totally free from any type financial debt. The only RUB38m quasi-debt obligation was settled in 2015 in accordance with local regulation.

RATING SENSITIVITIES
A downgrade of the sovereign's ratings would lead to UrFU's downgrade. Weakening links with the sponsor visible primarily in material rise of commercial debt not guaranteed by the government or decline of state support as a result of legal status change, which is unlikely, could also lead to a downgrade.