Standard & Poor’s Ratings Services said today that it revised its outlook on the Russian Republic of Tatarstan from stable to positive. At the same time, the ‘BB-‘ long-term issuer credit rating was affirmed.
“The outlook revision reflects the republic’s economic growth and continuously good financial performance after the termination of special federal program financing,” said Standard & Poor’s credit analyst Irina Pilman.
The rating continues to be constrained by Tatarstan’s concentration in the oil sector (in particular on Russian oil company Tatneft OAO {not rated}), contingent liabilities due to strong involvement in strategic sectors of the local economy, and restricted budgetary predictability and flexibility due to federal control over revenues and expenditures. Tatarstan’s consistently strong budgetary performance and solid liquidity support the rating, as do its low debt burden and continued economic growth and diversification.
Located in the Russian Federation (foreign currency BBB+/Stable/A-2; local currency A-/Stable/A-2; Russia national scale ‘ruAAA’), Tatarstan is vulnerable to oil market volatility due to Tatneft’s provision of about one-third of the republic’s tax revenues. Direct debt stood at Russian ruble 530.4 million at year-end 2006.
“We expect the growth in non-oil-related sectors to compensate for the stagnation in oil extraction and to result in the stabilization of tax proceeds in real terms,” said Ms. Pilman. “We also expect continued low debt and strong budgetary performance.”
Further progress in the medium-term budgeting, both on the national and regional levels, more risk aversion in the reserves policy, and more clarity in the republic’s links with related economic entities could positively affect Tatarstan’s credit quality in the next two years.
A negative scenario, which could put downward pressure on the rating, would involve a depletion of liquidity reserves as a result of a sharp decrease in revenues from Tatneft, together with the growth of operating expenditures. We consider this scenario unlikely. An increase in total tax-supported debt to more than the prudent level of 30% of total revenues could also squeeze the rating.
