Training on modelling fundamentals December 17–18

ACRA upgrades the Tver Region to BBB+(RU), outlook Stable, and withdraws rating on redeemed bond

The credit rating of the Tver Region (hereinafter, the Region) has been upgraded on the changed assessment of budget risks relating to the support of the quasi-public sector of the economy, as well as on the stabilization of the Region’s operating balance amid stable debt and the absence of refinancing risk at the forecast horizon. The rating is capped by the high level of debt load against the operating balance, limited flexibility of budget expenditures and moderate economic development indicators as compared to the national averages.

The Tver Region is located in the Central Federal District. The Region generates 16% of the total electric power of the Central Federal District. In 2017, the Region was ranked second (after Moscow) among regions of the Central Federal District in terms of generated electric power.

Key rating assessment factors

Significant debt load and low refinancing risk. The ratio of debt to operating balance of the Region has stabilized at 2.2–2.8, which, in ACRA’s opinion, indicates an increased debt load. The Agency expects that in 2019, the debt load will remain within the specified limits, while the risks of debt refinancing are absent on the forecast horizon due to restructured budget loans and medium-term revolving credit lines due in 2020. The need to replace almost half of the debt in 2020 (uneven repayment schedule) is a factor limiting the debt load assessment, although the refinancing risk is likely to be small in this period.

Limited flexibility of fiscal spending with high self-sufficiency of the budget. The Region’s budget has high level of self-sufficiency (80% on average in 2015-2018, excluding subventions) and fairly diversified tax revenues, but flexibility of fiscal spending is limited (the share of mandatory spending is 78% on average). The average operating balance / capital expenditures stand at 21% / 12% of regular revenues. Budget deficit indicated in the current version of the Region’s budget law shall be covered by funds held on budget accounts increased by the last year’s surplus. According to ACRA estimates for 2018–2019, the budget discipline indicators will be within the range corresponding to the medium assessment under the ACRA methodology.

High liquidity. The Region uses funds of public sector and autonomous government institutions in managing liquidity. The amount of available liquidity allows the Region to timely perform its expenditure commitments including interest payments. In order to minimize interest expenses, the Region also uses loans granted by the Federal Treasury.

Key assumptions

  • Maintaining the share of the Region’s mandatory spending capped at 80% of budget expenses;
  • Maintaining the amount of transfers in 2019-2020 at the 2015-2017 level.

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 positive rating action may be prompted by:

  • Structural improvement of debt repayment profile;
  • Significant decline in the debt pressure on the Region’s budget;
  • Lower share of mandatory spending in the Region’s budget.

A negative rating action may be prompted by:

  • A decrease in own budget revenues by 6% or more from values projected by ACRA;
  • Higher risk of short-term liquidity in raising short-term bank loans;
  • Higher relative debt load.

Issue ratings

Withdrawn

Tver Region, 34009 (ISIN RU000A0JUAX5); maturity date: November 22, 2018, issue volume: RUB 3 bln.

Credit rating withdrawal rationale. The withdrawal of the credit rating on the bond (ISIN RU000A0JUAX5) issued by the Tver Region is caused by full redemption of the bond.

Regulatory disclosure

The credit ratings of the Tver Region and bond issued by the Tver Region (ISIN RU000A0JUAX5) have been assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings 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 course of assigning a credit rating to the bond issue above, Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation has also been used.

For the first time, ACRA published the credit rating of the Tver Region and the credit rating of the government bond of the Tver Region on December 12, 2017. The credit rating of the Tver Region and its outlook are expected to be revised within 182 days following the rating action date (December 05, 2018) as per the Calendar of planned sovereign credit rating revisions and publications.

The credit ratings were assigned based on the data provided by the Tver Region, 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 the Government of the Tver Region participated in their assignment.

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

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

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