OREANDA-NEWS. November 30, 2015. Fitch Ratings has affirmed Russian Tyumen Region's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BBB-', National Long-term rating at 'AAA(rus)' and Short-term foreign currency IDR at 'F3'. The Outlooks on the Long-term IDRs are Negative and the Outlook on the National Long-term rating is Stable. Tyumen's ratings are constrained by those of the Russian sovereign (BBB-/Negative). The Negative Outlook reflects that on the sovereign ratings.

The affirmation reflects Fitch's expectation that the region will continue to record a strong operating balance at 25%-30% of operating revenue in 2015-2017, in line with its strong historical performance. We also expect that Tyumen will continue to maintain a strong cash position and close to zero direct risk.

The 'BBB-' rating reflects Tyumen's robust wealth and economic indicators, which are significantly above the national average, strong budgetary performance and liquidity, and that it is virtually debt free.

The region's strong intrinsic credit profile remains constrained by the institutional framework for local and regional governments (LRGs) in Russia. The predictability of Russian LRGs' budgetary policy is hampered by frequent reallocation of revenue and expenditure responsibilities between the tiers of government.

Fitch expects Tyumen to maintain a sound fiscal performance with an operating balance of about 25%-30% of operating revenue in 2015-2017. The region possesses high tax capacity, so taxes represented 95% of the region's 2014 operating revenue and corporate income tax comprises about 75% of tax proceeds. Largest regional tax-payers are represented by major national oil and gas producers. This provides the region with a strong tax base, but makes it vulnerable to the international commodities market and exposes the region's budget to concentration risk.

Tyumen recorded a RUB28.5bn surplus as of 1 October 2015, which is over performing the RUB7bn full-year deficit budgeted by the region. This is mostly driven by strong tax revenue proceeds and keeping expenditure behind schedule. Fitch considers the region will maintain the full-year surplus before debt variation, but it will be scaled down due to acceleration of expenditure in 4Q15. Fitch considers Tyumen will maintain a balanced/low deficit budget in 2016-2017.

Tyumen has remained free of market debt since 2009. The region's direct risk is limited to a budget loan of RUB321m contracted from the federal government as of end-April 2015. However, Tuymen is exposed to some contingent risk stemming from it PSEs' debt. As of 1 January 2015, total financial debt of the region's majority-owned public companies accounted for RUB7.3bn (5% of full-year operating revenue). Regional PSEs are self-financed and Fitch considers this indirect risk low.

The region's liquidity remains strong, with interim cash at 1 October 2015 of RUB56bn, up from RUB25.9bn at end-2014. Tyumen fully relies on its cash to fund the budget deficit, so Fitch does not expect the region to borrow in the market in the medium term.

The region's ratings are constrained by Russia's ratings. A downgrade is unlikely due to the region's intrinsic strength, unless the sovereign is downgraded. However, a sustained material deterioration of the region's budgetary performance and debt metrics would be negative for the region's ratings.

The ratings would be positively affected by positive rating action on the sovereign.