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Moody's affirms Ba2 rating on Republic of Chuvashia (Russia)

February 07, 2008 | Cbonds

Moscow, February 07, 2008 -- Moody's Investors Service has affirmed the
Republic of Chuvashia's issuer rating of Ba2 (global scale, local currency).
The rating outlook is stable. At the same time, Moody's Interfax Rating
Agency, which is majority-owned by Moody's, has affirmed Chuvashia's Aa2.ru
national scale rating.

According to Moody's, the ratings are driven by increasing tax revenue,
underpinned by sustained economic growth, stable and positive operating
balances and a low debt burden. The ratings also reflect the considerable
challenges facing Chuvashia, including the growth of relatively rigid
operating expenditure, the significant infrastructure requirements and
limited revenue flexibility.

Chuvashia's tax revenue grew by 34% in 2006 and 37% in 2007 according to
anticipated budget results, reflecting the improving financials of local
companies and growing personal income of the republic's population.
Chuvashia recorded solid and stable operating balances in 2006 (gross
operating balance or GOB was 18% of operating revenue) and is expected to
report GOB of 22% in 2007. Moody's notes that Chuvashia still relies upon
federal equalisation transfers, which accounted for about 25% and 21% of
total budget revenue in 2006-2007 accordingly. However, in 2009-2010, these
transfers - adjusted every three years - will be lowered significantly under
the current equalisation methodology of the Russian Ministry of Finance,
which takes account of Chuvashia's increasing tax and non-tax revenues.
Moody's notes that the rapid growth in public sector wages and social
benefits is exerting considerable pressure on operating expenditure.

Chuvashia's debt burden remains low: total debt to operating revenue ratio
is estimated at 23% in 2007 compared to 20% in 2006. The bulk of Chuvashia's
direct debt is long-term rouble bonds issued in recent years.
According to Chuvashia's three-year budget, although new rouble bonds are to
be issued, the debt burden should remain moderate. Moody's notes that
essential capital expenditure under the current programme of the republic
government to boost local road infrastructure and water supply, coupled with
limited tax revenue flexibility, could lead to a further increase in the
debt burden over the long term.

Chuvashia's ratings also reflect the application of Moody's Joint-Default
Analysis (JDA) methodology for regional and local governments, with a
Baseline Credit Assessment (BCA) of 12 (on a scale of 1 to 21, where 1
represents the lowest credit risk), and a low likelihood that the federal
government would act to prevent an imminent default by the region. The
assumed low likelihood of extraordinary support reflects past instances of
regional and local government defaults and a federal government policy
stance that does not favour interventions to prevent defaults by lower-tier
governments on a timely basis.

Chuvashia is in the Volga Federal District and has a population of 1.3
million and an area of 18,300 square kilometres. The region contributes 0.4%
to Russia's gross domestic product.

Company: Chuvash republic

Full company name
Country of riskRussia
Country of registrationRussia

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