Standard & Poor's: Novosibirsk Outlook Now NegativeBack to list
Standard & Poor's Ratings Services said yesterday that it had revised its outlook on the City of Novosibirsk, the third-largest city in the Russian Federation (foreign currency BBB/Negative/A-3; local currency BBB+/Negative/A-2; Russia national scale rating 'ruAAA') to negative from stable. At the same time, the 'BB-' long-term issuer and 'ruAA-' Russian national scale ratings were affirmed.
"The outlook revision reflects Novosibirsk's increased short-term debt and weaker self-financing capacity," said Standard & Poor's credit analyst Irina Pilman.
The ratings are constrained by the city's low financial flexibility and predictability, downside pressures on budgetary performance, and pressure on liquidity due primarily to a recent accumulation of short-term debt.
These constraints are mitigated by moderate debt, rather sophisticated debt management, limited contingent liabilities, and a relatively diversified economy.
As of April 1, 2009, the city's cash on accounts stood at Russian ruble (RUR) 1.4 billion (about $41.7 million), which covered from 2 to 3 weeks of average 2009 planned monthly operating expenditures. However, 90.5% of this cash was transferred from the upper budgets and is earmarked.
The outlook is negative because of Novosibirsk's higher liquidity risks following short-term debt accumulation in 2008 and its weakening self-financing capacity.
"A downgrade is possible if the economic downturn persistently lowers Novosibirsk's revenue growth, leading to structurally weaker self-financing capacity, and to persistently high dependence on short-term debt," said Ms. Pilman.
We could revise the outlook to stable if the city manages both to curb expenditure growth and returns to its strong self-financing capacity in line with 2007 levels, and succeeds in reducing the share of short-term debt, gradually reducing debt service to less than 10% of operating revenues.