OREANDA-NEWS. Fitch Ratings has affirmed the Russian Tyumen Region's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB' with Negative Outlooks, Short-term foreign currency IDR at 'F3' and National Long-term rating at 'AAA(rus)' with Stable Outlook.

The region's ratings are constrained by Russia's sovereign ratings (BBB/Negative). The ratings reflect the region's currently debt free position, adequate but reduced liquidity, and sound operating performance. The also consider the region's sound, albeit slowing, economy. The Negative Outlook reflects that on the sovereign ratings.

Fitch expects Tyumen Region to maintain a sound operating margin of about 20% in 2014-2016 (2013: 17%) and gradually reduce the budget deficit. The region's deficit before debt variation widened substantially to 28.5% of total revenue by end-2013 (2012: negative 3%), depressed by negative operating revenue growth, mitigated in part by materially reduced opex. Taxes represented 86% of the region's 2013 operating revenue, with corporate and personal income taxes the prime sources of taxation.

The region was free of direct debt in 2009-2013. However, Fitch expects the region's direct risk to increase to up to 5% of current revenue in 2014 and up to 10%-15% in 2015-2016. Debt growth will be fuelled by a budgeted deficit in the medium term. The region's direct risk is limited to a budget loan contracted from the federal government in 2010. The region had a negligible RUB320m of an outstanding budget loan at end-1Q14.

Tyumen Region was net cash positive in 2009-2013. However, the region depleted part of its cash to fund the budget deficit in 2013, decreasing cash reserves to RUB16.6bn from RUB48.8bn a year earlier. Fitch expects the region to maintain a lower cash position in the medium term, compared with its historically high cash position.

The administration expects continued growth of the local economy at about 5% yoy in 2014-2016, likely to be boosted by increased output in petrochemical and oil refining industries. The region's GRP increased by 7% yoy in 2013 according to the administration's estimates, underpinned by steady output in the oil and gas sector. Strong economic performance supports the region's significantly above national average per capita wealth indicators.

The region's ratings are constrained by Russia's ratings (BBB/Negative). A downgrade is unlikely due to the region's intrinsic strength, unless the sovereign is downgraded. However, a consistent material downward deviation from our baseline scenario would be negative for the region's ratings.

The ratings would be positively affected by a revision of the sovereign Outlook to Stable from Negative.