Fitch Rates La Rioja 'B'; Outlook Stable

SAO PAULO--(BUSINESS WIRE)-- Fitch Ratings has assigned a 'B' rating to the Province of La Rioja, Argentina's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs). The Rating Outlook is Stable.

KEY RATING DRIVERS

Provincia de La Rioja's ratings reflect the features of the Argentinian institutional framework with a solid and stable revenue system. The ratings are based on the province's better than average debt metrics when compared to local and international peers and adequate operating margins. The province's ratings are capped by those of the sovereign.

In 2015, leverage (debt versus operating income) was 12.9%. This compares better to the average of peers rated B (47.9%). Debt sustainability (debt service/operating balance) of 23.8% is also better than peers (71.2%). Unlike other Argentinean provinces, PLR does not have short-term financial debt concentration.

Operating margins reached an annual average of 12% over the last five years, thus higher than B rated peers (5.3%). The evolution of La Rioja's margin is dependent on national treasury contributions, which are discretionary federal revenues; these revenues where recurrent during 2011-2015 however any reduction in these revenues could affect the province's operating balance. Fitch expects PLR will manage to maintain an adequate level of operating margin since the recent evolution of current expenditure has been met by these federal transfers.

PLR's economy has a low value-added activity, comparing poorly with other local economies and a large share of public employment, which further conditions the already limited financial autonomy of the province. The local economy is heavily influenced by agricultural-related activities (mainly vines and olive trees) and the production of paper and cardboard products, which have performed better than commodities. Main trade partner is Chile followed by Brazil.

PLR's has an adequate liquidity position; in 2015 cash deposits represented around 7% of its operating revenues. Moreover, the province has been able to alternate deficits with surpluses over the last five years. In 2015, floating debt represented 5.8% of La Rioja's operating revenues. PLR has transferred its pension regiment to the nation. As a result, the province does not have to handle pension deficits.

RATING SENSITIVITIES

The IDR of the Province of La Rioja should move in tandem with Argentina's sovereign ratings. An upgrade of the sovereign IDR, coupled by positive and sustained operating margins could lead to an upgrade in the province's IDR.

A downgrade of Argentina's IDR could lead to a negative rating action.

Fitch has assigned the following rating:

Province of La Rioja, Argentina

--Long-Term Foreign and Local Currency IDRs 'B'; Outlook Stable.

Date of Relevant Rating Committee: Nov. 22, 2016

Additional information is available on www.fitchratings.com

Applicable Criteria

International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016)

https://www.fitchratings.com/site/re/878660

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1016474

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1016474

Endorsement Policy

https://www.fitchratings.com/regulatory

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Source: Fitch Ratings

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