OREANDA-NEWS. Fitch Ratings has affirmed the Russian City of Samara's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB+' with Stable Outlooks, Short-Term Foreign Currency IDR at 'B' and its National Long-Term rating at 'AA(rus)' with a Stable Outlook.

The affirmation reflects Fitch's unchanged base line scenario that the city will continue to record a stable operating margin and narrowing fiscal deficit, which will lead to the stabilisation of direct risk at below 40% of current revenue.


The 'BB+' rating reflects the city's stable budgetary performance, underpinned by a diversified local economy and potential financial support from Samara Region. It also factors in the city's moderate direct risk, albeit with a high bias toward short-term bank loans. This exposes the city to high refinancing risk and makes it dependent on access to financial markets in order to refinance maturing debt.

Fitch expects the operating balance to hover close to a sound 12% of operating revenue in 2016-2018, which is in line with the 2015 outrun. This is slightly below the strong average margin of 16% in 2013-2014, but still commensurate with Samara's rating. Operating performance was weaker in 2015 due to a 10% contraction in the city's tax revenues as a result of the weak economic environment. Growth in current transfers and cost-efficiency measures implemented by the administration help mitigate the tax revenue drop but cannot fully compensate it.

Weaker operating balance and increased interest expenditure caused widening of the deficit before debt variation to 5.6% of total revenue in 2015 (2014: -1.6%). The city intends to conduct a prudent budgetary policy and has budgeted for a close to zero deficit for 2016-2018. However, Fitch expects that the weak economic environment will curb tax revenue recovery and that the city's deficit before debt variation will stay at 2.5% of total revenue in 2016 and gradually narrow to 1.5%-2.0% in 2017-2018.

Fitch projects that the city's direct risk will remain moderate at RUB7.7bn (35.8% of current revenue) by end-2016, slightly up from RUB7.1bn (35.1%) a year earlier. The prudent budgetary policy of the city's administration aiming to limit the fiscal deficit should lead to direct risk stabilising below 40% of current revenue in 2017-2018. Contingent risk is low as the city does not have outstanding guarantees and its public sector entities are self-sufficient.

Despite the moderate debt burden, Samara is exposed to refinancing risk as it mostly relies on short-term bank loans for deficit financing. By end-2016 the city needs to refinance 52% of its outstanding debt with another 47% due in 2017. To meet this obligation, in December 2015 the city contracted several revolving credit lines with banks with two years maturity. Most of these credit facilities were not used and are available at first demand. At 1 July 2016, these credit lines amounted to RUB3.1bn and cover about 90% of debt due till year-end. Fitch expects the city to be able to roll over the remaining maturing bank loans, although the short-term tenor of its loans means that it will continue to face refinancing risk.

With a population of above one million, the city is the capital of Samara region, which has a well-developed diversified economy, based on a processing industries and services. The city receives negligible general-purpose financial aid from the region as its fiscal capacity is stronger than the average municipality in the region. However, Fitch forecasts a 0.5% decline of national GDP in 2016 after a 3.5% drop in 2015, which will weigh on the city's economic and budgetary performance.

The city of Samara's credit profile remains constrained by the weak institutional framework for local and regional governments (LRGs) in Russia. Russia's institutional framework for LRGs has a shorter record of stable development than many international peers. The predictability of Russian LRGs' budgetary policy is hampered by the frequent reallocation of revenue and expenditure responsibilities among government tiers.


A strong budgetary performance with sustainable operating margin above 15% and maintenance of moderate debt with lengthening of debt maturity profile in line with debt payback (direct risk to current revenue, 2015: 4 years) could lead to an upgrade.

Continuous deterioration of the budgetary performance leading to a direct risk growth above 50% of current revenue (2015: 35.2%) driven by short-term financing would lead to a downgrade.