ACRA affirms AAA(RU) to Moscow, outlook Stable, and AAA(RU) to bond issues

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 load.

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 is 98.2% of total budget revenues (excluding subventions)), with relatively low mandatory expenditures (as per ACRA methodology) amounting to 60% of total expenditures (according to averaged data for 2015–2017 and ACRA estimations for 2018). ACRA expects that in 2018–2019 Moscow will maintain the operational balance equal or above 28% of regular revenues and the share of capital expenses equal or above 26% of total expenditures.

Cash flow balance in revenues and expenditures underpins the high budget liquidity. The monthly opening account balances (including deposits) are comparable to expenses for 4–6 months, which results in a significant liquidity reserve. In 1H2018, revenues from cash deposits amounted to 2.6% of tax and non-tax revenues of the budget.

Debt load is extremely low and relevant risks are minimal. As at August 1, 2018, Moscow’s debt portfolio comprised only bonds, including bonds (RUB 4.3 bln) due in 2018 and bonds (RUB 30 bln) due in 2022. 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 of Moscow 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

Moscow Government Bond, 2006 (RegS RU32048MOS0, ISIN RU000A0JNYN1), maturity date: June 11, 2022, outstanding amount: RUB 30 bln — ААА(RU);

Moscow Government Bond, 2009 (RegS RU27066MOS0, ISIN RU000A0JQHM1), maturity date: November 22, 2018, outstanding amount: RUB 4.3 bln — ААА(RU).

Rationale. In ACRA’s opinion, bonds issued by Moscow are senior unsecured debt instruments, and their credit rating is equal to the rating assigned to Moscow.

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 (August 27, 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 RF 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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