Fitch affirms Yakutia's ratings

Fitch Ratings-London/Moscow-5 February 2007: This announcement corrects the version released earlier today. In the first paragraph it should read that Fitch has assigned not affirmed the Republic of Sakha (Yakutia)'s Long-term local currency rating. The correct version follows:

Fitch Ratings has today affirmed the Republic of Sakha (Yakutia)'s ratings at Long-term foreign currency 'B+', Short-term foreign currency 'B' and National Long-term 'A(rus)'. At the same time the agency has assigned the Republic of Sakha (Yakutia) a Long-term local currency rating of ‘B+'. The Outlooks on all the Long-term ratings are Stable.

The ratings reflect the republic's continuously improving debt structure and the increasing efficiency of its broad public sector management. However, the ratings also factor in its high budgetary rigidity and dependence on a single taxpayer, ALROSA diamond mining company, which results in its budget performance being vulnerable to commodity price fluctuations.

The republic's issued debt accounted for 48% of the region's total debt at end-2006, up from 4% in 2002, replacing the restructured budget loans. The share of the latter decreased significantly to 21% from 80% during the same period. Total debt (including guarantees)-to-current revenues ratio averaged 28.3% in 2005-2006 compared to 36.7% in 2003-2004.

The Republic of Sakha (Yakutia) ran a privatization programme in 2006, under which the number of public sector companies decreased to 544 in 2006 from 639 in 2005, limiting the republic's exposure to the indirect risks of the public sector. According to its public sector restructuring plan for 2007, the number of public sector companies will decrease by a further 117.

At the same time the republic's budget demonstrates a high level of rigidity. The share of transfers to the municipalities' budgets increased to 38.5% of total expenditures in 2006 from 31% in 2005. The share of rigid expenditures averaged 85% of the republic's operating expenditures in 2005-2006. Because of the remoteness of the republic, transportation of supplies to municipalities are costly, adding to the rigidity of expenditure.

In addition, the ratings take into account the high dependence of the republic's economy and budgetary performance on primary industries and the slowdown of economic development due to the current mining output stagnation.

The republic is among the richest regions in the Russian Federation. It is the third-largest in the Russian Federation in terms of natural resources endowment. The value of its natural reserves is estimated at USD1.3trn or 1.5% of global natural resources.

// Feb. 5, 2007

Reported by CBonds.Info

Related links:
Fitch Ratings Table
Fitch Ratings' Analysis in Russian