29 Apr 2010 14:44

Russian Irkutsk Oblast Outlook Now Positive On Possible Higher Revenues And Improved Market Sentiment; Affirmed At 'B'

MOSCOW. April 29 (Interfax) - Standard & Poor's Ratings Services said on Thursday that had had revised its outlook on Irkutsk Oblast to positive from stable based on the oblast's commitment to cost-containing measures amidst economic difficulties and conservative revenue planning. The agency said in a statement that S&P had affirmed its 'B' long-term issuer credit rating.

The statement said: "The rating on the Irkutsk Oblast, located in Eastern Siberia in the (foreign currency BBB/Stable/A-3; local currency BBB+/Stable/A-2; Russia national scale 'ruAAA') is constrained by the oblast's limited financial flexibility, high operating and capital-expenditure pressure, high contingent liabilities, and still modest--although improved--liquidity.

"On a positive note, the oblast government's ability and willingness to take cost-containing measures to improve budgetary performance and lower the debt burden, as well as its diversified economy with long-term growth potential, support the oblast's credit quality."

"The positive outlook reflects our expectations that Irkutsk Oblast might receive higher-than-expected revenues if already established taxpayers increase profit tax allocations to the budget due to rebounding commodity prices or if investments in new enterprises result in significant tax proceeds," the statement said quoting Standard & Poor's credit analyst Felix Ejgel. "Moreover, currently positive sentiments in the Russian domestic capital market could allow the region to smooth its debt repayment schedule," he said.

The statement said: "Should the oblast achieve better-than-planned operating budgetary performance that would allow it to either reduce its contingent liabilities or increase capital investments without deterioration of its debt burden, we could raise the rating. An improved liquidity position, through building up its cash reserves, arranging medium-term committed credit facilities, or further reducing annual debt service, could also lead to a positive rating action.

"Conversely, the oblast's failure to recover an adequate liquidity position; faster-than-planned operating-expenditure growth, which could stem from political or social pressure on the government; or resumed negative capital market sentiment leading to predominant reliance on short-term borrowings could lead us to revise the outlook to stable."