Training on Forecasting, April 7–8

ACRA affirms A(RU) to Krasnoyarsk Krai, outlook “Positive”, and A(RU) to bonds

The credit rating of the Krasnoyarsk Krai (hereinafter, the Region) is based on its high budget self-sufficiency, well-balanced debt repayment schedule, and medium credit risk. The rating is limited by moderate social and economic indicators and low flexibility of budget expenditures.

The Region is a part of the Siberian Federal District. The Region’s population is nearly 2.9 mln people (1.95% of Russia’s population). The Region’s GRP is 2.5% of the total GRP of Russian regions. Since 2018, the largest share of tax revenues has been generated by the extractive sector (earlier it was manufacturing sector).

Key rating assessment factors

The Region's debt load indicates the medium level of credit risk. In 2018, the budget deficit was covered by new borrowings, while the absolute debt grew by 4% (RUB 4.3 bln). Higher amount of tax and non-tax revenues (TNTR) drove the ratio of debt to TNTR down from 57% to 52% at the end of last year (which is lower than the amount set forth by the budget loan restructuring agreements). In 2018, operating balance grew significantly, which pushed down the debt to operating balance ratio from 2x to 1.7x. The current version of the 2019 budget law provides for the deficit of 7% and the debt increase by 13%, due to which debt load indicators will return to their 2017 values. However, given the need to comply with the budget restructuring rules, the Region will achieve a much smaller budget deficit and lower debt load in 2019, according to the Agency.

The Region's debt repayment schedule is determined by its structure: 71% of the debt are bonds and 22% are restructured budget loans. On average, the Region will therefore refinance 16% of its current debt in the next four years.

Budget discipline indicators depend on terms of budget loan restructuring. The period of high ruble prices for extracted raw materials and primary products allowed the Region to execute the 2018 budget with the lowest deficit since 2012 (RUB 1.8 bln, or 1% of TNTR). More than a half of the increase in TNTR, which amounted to RUB 25 bln (or +15%), was contributed by income tax revenues (up by RUB 14.4 bln, or 19%). Personal income tax and property tax also rose significantly (by 10% and 13% respectively). The growth in property tax revenues was one-off (due to cancellation of the federal exemption). The growth in federal budget transfers was mainly due to the financing of the Universiade in Krasnoyarsk.

According to the ACRA forecast for 2019, the Region will fulfil the terms of budget loan restructuring, meaning the budget deficit will be 2% of TNTR vs. the currently expected 7% of TNTR. The share of capital expenditures will decrease in 2019, which is partly due to the end of the Universiade.

The maximum share of tax revenues (27%, according to ACRA estimates) is generated by the extractive industry (hydrocarbons and non-ferrous metals). Considering the prospects of commissioning new oil and gas fields, production, not manufacturing, will continue to dominate the structure of tax revenues.

Key assumptions

  • The volatility of ruble prices for extracted resources will be compensated by higher production rates;
  • The Region’s budget will be executed with a deficit not exceeding 2% of TNTR;
  • The Region will stick to a balanced debt policy.

Potential outlook or rating change factors

The Positive outlook assumes that the credit rating will most likely change within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • The Region’s budget being executed with a deficit lower than 2% of TNTR in 2019;
  • Stabilization of the operating balance of at least 18% of regular revenues;
  • Higher economic indicators.

A negative rating action may be prompted by:

  • The Region’s budget being executed with a deficit above 2% of TNTR in 2019, and a growth in debt load;
  • Lower tax revenues, operating balance declining to 15% of regular revenues;
  • Growth in mandatory expenditures by 5% and more in 2019;
  • Debt load (debt to operating balance ratio) exceeding 3x.

Issue ratings

Krasnoyarsk Krai, 35016 (ISIN RU000A0ZZM87), maturity date: September 12, 2025, issue volume: RUB 12 bln — А(RU).

Krasnoyarsk Krai, 35015 (ISIN RU000A0ZZC48), maturity date: June 26, 2025, issue volume: RUB 12 bln — А(RU).

Krasnoyarsk Krai, 35014 (ISIN RU000A0ZYFB8), maturity date: October 31, 2024, issue volume: RUB 7.8 bln — А(RU).

Krasnoyarsk Krai, 34013 (ISIN RU000A0ZYCM2), maturity date: October 3, 2024, issue volume: RUB 10 bln — А(RU).

Krasnoyarsk Krai, 34012 (ISIN RU000A0JWXF0), maturity date: October 25, 2023, issue volume: RUB 18.231 bln — А(RU).

Krasnoyarsk Krai, 34011 (ISIN RU000A0JVWM0), maturity date: October 29, 2019, issue volume: RUB 4.25 bln — А(RU).

Krasnoyarsk Krai, 34010 (ISIN RU000A0JVS10), maturity date: September 10, 2019, issue volume: RUB 12.5 bln — А(RU).

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

Regulatory disclosure

The credit ratings have been assigned to the Krasnoyarsk Krai and bonds issued by the Krasnoyarsk Krai (ISIN RU000A0ZZM87, RU000A0ZZC48, RU000A0ZYFB8, RU000A0ZYCM2, RU000A0JWXF0, RU000A0JVWM0, RU000A0JVS10) 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 the Krasnoyarsk Krai was published by ACRA on October 9, 2017, and the credit ratings of government securities of the Krasnoyarsk Krai (ISIN RU000A0ZYCM2, RU000A0JWXF0, RU000A0JVWM0, RU000A0JVS10) were published on October 10, 2017, the credit rating of the government security of the Krasnoyarsk Krai (ISIN RU000A0ZYFB8) on November 7, 2017, the credit rating of the government security of the Krasnoyarsk Krai (ISIN RU000A0ZZC48) on July 2, 2018, and the credit rating of the government security of the Krasnoyarsk Krai (ISIN RU000A0ZZM87) on September 21, 2018.

The credit rating of the Krasnoyarsk Krai and its outlook as well as the credit ratings of government securities issues of the Krasnoyarsk Krai (ISIN RU000A0ZZM87, RU000A0ZZC48, RU000A0ZYFB8, RU000A0ZYCM2, RU000A0JWXF0, RU000A0JVWM0, RU000A0JVS10) are expected to be revised within 182 days following the publication date of this press release in compliance with the Calendar of planned sovereign credit rating revisions and publications.

The credit ratings were assigned based on data provided by the Krasnoyarsk Krai Government, 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 the Krasnoyarsk Krai Government participated in the rating process.

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

ACRA provided no additional services to the Krasnoyarsk Krai Administration. No conflicts of interest were discovered in the course of credit rating assignment.

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