MOSCOW (Standard & Poor's) March 22, 2010--Standard & Poor's Ratings Services said today that it had revised its outlook on the Russian Republic of Sakha (Yakutia) to stable from negative and affirmed the 'BB-' long-term issuer credit and 'ruAA-' Russian national scale ratings.

At the same time, 'BB-' and 'ruAA-' senior unsecured debt ratings were assigned to the republic's planned three-and-one-half year amortizing Russian ruble (RUB) 2 billion ($69 million) bond, which the region intends to place on March 25, 2010. The bond will have 14 quarterly, fixed coupons and an amortizing repayment schedule. In 2012, 40% of the bond is scheduled to be redeemed, with the remaining 60% set to be repaid in 2013.

"The outlook revision reflects the republic's expected stronger financial performance, supported by higher-than-forecast tax revenues, substantial transfers from the federal budget, and a proven ability to control expenditure growth," said Standard & Poor's credit analyst Alexandra Balod.

The ratings on Sakha reflect its status as a vast, isolated region, with an economy highly concentrated on natural resources extraction and exposed to the volatility of commodity markets. The severe subarctic climate, a remote location, and the need for further development of transport infrastructure require high operating and capital spending, which is difficult to reduce. The republic also suffers from its low revenue-raising capacity and its dependence on federal decisions on intergovernmental relations and tax regimes.

On the positive side, the republic demonstrates a commitment to tight fiscal discipline and a cautious debt policy, which have so far resulted in a low debt burden and consistent sound budgetary performance amidst economic difficulties. Sakha benefits from its wealthy economy and declining dependence on tax proceeds from a single taxpayer, as well as massive investment in local infrastructure.

The stable outlook reflects our expectation that Sakha's conservative financial planning and good cost-containment measures will allow the republic to achieve sound budgetary performance in 2010-2012, along with the general economic recovery. We also factor in the republic's continued prudent debt management, with debt service remaining relatively low due to its smooth debt amortizing profile.

"We might lower the ratings if the republic is unable to adjust expenditure growth to volatile revenues and if there is a further economic downturn," said Ms. Balod. "Subsequent deteriorating operating balances and higher borrowing--especially short-term debt accumulation-–which might expose Sakha to refinancing risks, could also result in our lowering the ratings."

Faster revival of revenues and additional transfers, resulting in better-than-forecast budgetary performance, and the implementation of a cautious liquidity policy could lead us to raise the ratings.