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ACRA affirms Moscow’s credit rating at AAA(RU), outlook Stable, and affirms bond issues credit rating

The credit rating assigned to Moscow (hereinafter, Moscow, or the City) is based on the well-developed economy, substantial surplus of the operating balance, high budget sustainability, sound budget structure balance, substantial budget liquidity, and insignificant debt burden.

About 12.5 million people live in Moscow (8.5% of the total population of Russia). Moscow ranks first in Russia in terms of the aggregate GRP. The status of political, financial, industrial, scientific and cultural center is a key driver of the economy of Moscow.

Key rating assessment factors

High surplus of the operating balance allows Moscow to finance capital expenses and repay liabilities without recourse to refinancing. The Moscow’s budget is sustainable (the share of tax and non-tax revenues averaged 98.2% of total (excluding subventions) budget revenues in 2014-2017), with relatively low mandatory expenditures (according to ACRA methodology) (61.2% of total expenditures on average in the above period). ACRA expects that in 2018–2019 Moscow will maintain the operational balance and the share of capital expenses at 28% of regular revenues and 26% of total expenditures, respectively.

Cash flow balance in revenues and expenditures underpins the high budget liquidity. The quarterly opening account balances (including deposits) are comparable or exceed the forthcoming quarter expenses, which results in a significant liquidity reserve. Revenues from depositing temporary free cash of the budget averaged 3.62% of tax and non-tax revenues of the budget in 2015-2017.

In the last four years (2014-2017), the amount of the City’s debt has declined by 5.2 times or RUB 144.8 bln. The City has fully repaid fiscal loans in 2017. Moscow’s debt portfolio comprised only bonds as at February 2, 2018. According to ACRA estimates, in 2018-2019 the City will not experience any needs in attracting debt capital. Analysis of the financial condition and liabilities of enterprises of the expanded public sector revealed no need for allocating budgetary funds in addition to those envisaged in the current versions of relevant state programs.

Key assumptions

  • The financial performance of Moscow remaining much higher than the national average;
  • The budget expense growth rate remaining under control and the operating balance surplus maintained at 28–35% of regular revenues;
  • Maintaining high liquidity of the budget.

Potential outlook or rating change factors

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.

A negative rating action may be prompted by:

  • A substantial growth of debt burden;
  • A substantial decline in operational balance surplus;
  • A substantial change in the inter-budget relations in the Russian Federation.

Issue ratings

ACRA assigns AAA(RU) to:

Moscow, 48 (RegS RU32048MOS0 / ISIN RU000A0JNYN1), redemption: June 11, 2022, outstanding amount: RUB 30 bln.

Moscow, 66 (RegS RU27066MOS0 / ISIN RU000A0JQHM1), redemption: November 23, 2018, outstanding amount: RUB 4.347 bln.

Regulatory disclosure

The credit ratings have been assigned to Moscow and to bonds issued by Moscow (ISIN RU000A0JNYN1, ISIN RU000A0JQHM1) under the national scale for the Russian Federation based on the Methodology for Credit Rating Assignment to Regional and Municipal Authorities of the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities. In the process of credit rating assignment to the above issues, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also used.

For the first time, the credit rating of Moscow and credit ratings of government securities of Moscow (ISIN RU000A0JNYN1, ISIN RU000A0JQHM1) were published by ACRA on August 30, 2017 and October 17, 2017, respectively.

The credit rating of Moscow and its outlook as well as the credit ratings of government securities of Moscow (ISIN RU000A0JNYN1, ISIN RU000A0JQHM1) are expected to be revised within 182 days after the rating action date (February 26, 2018) in compliance with the 2018 calendar of planned sovereign credit rating revisions and publications.

The assigned credit ratings are based on the data provided by Moscow, information from publicly available sources (the Ministry of Finance, the Federal State Statistics Service, and the Federal Tax Service), as well as ACRA’s own databases. The credit ratings are solicited, and Moscow Government participated in their assignment.

No material discrepancies between the provided data and the data officially disclosed by Moscow in its financial report have been discovered.

ACRA provided no additional services to Moscow Government. No conflicts of interest were discovered in the course of credit rating assignment.

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