Training on Forecasting, April 7–8

ACRA affirms the Tambov Region’s credit rating at BBB+(RU), outlook Positive, and affirms BBB+(RU) for its bonds

The credit rating of the Tambov Region (hereinafter, the Region) is based on stable budget discipline indicators and low refinancing risk. The credit rating is affected by the agricultural focus of the regional economy, which restricts budget revenue growth rates and socioeconomic indicators. The credit rating outlook is determined by the potential improvement in the Region’s budget provided that tax revenues increase and the debt load is reduced. 

The Tambov Region is located in the Central Federal District. Slightly less than 1% of Russia’s population lives in the Region. The Region accounts for about 0.5% of the country’s total GRP. In 2018, the Region’s GRP amounted to approximately RUB 331 bln. Agriculture (farming and food manufacturing) generates one third of the Region’s GRP.

Key rating assessment factor

Stable budget discipline and high capital expenses backed by federal transfers. The average share of the Region’s proprietary revenues (excluding subventions) should amount to 57% for 2016-2019 (average level of budget self-sufficiency). Although capital expenses annually account for a significant share of the regional budget expenses, more than half of them are financed by transfers from the federal budget, i.e., they cannot be a reserve for reductions in budget expenses. The regional budget’s tax revenues are diversified; however, ACRA notes a concentration in the tax base in related industries (farming and agricultural processing). On average, these sectors have accounted for about a third of the Region’s GRP and about 15% of tax revenues over the past three years. The relatively narrow tax base and income dynamics limit the future growth of tax revenues, as personal income tax is the largest contributor to the Region’s tax and non-tax revenues (TNTR).

Low refinancing risk. The Region’s debt load has reduced slightly since 2017, despite the increase in the absolute size of debt. This tendency is due to the growth of TNTR. The debt to proprietary revenues ratio was within the limits stipulated by the budget loan restructuring agreements as of January 1, 2019. However, ACRA takes into account the likelihood that this ratio will increase by the end of 2019 if the Region executes its budget according to the current version of the budget law.  

Given the debt repayment schedule and its structure, the risk of refinancing is minimal in the medium-term. The maximum share of the debt to be refinanced is 25% in 2022, and more than two thirds of the debt are budget loans and bonds.

Key assumptions

  • Maintaining the high dependency of budget revenues on transfers;
  • Control over budget expenses and maintaining mandatory expenses within 70% of total expenses;
  • Reduced relative debt load.

Potential outlook or rating change factors

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

A positive rating action may be prompted by:

  • Increased budget self-sufficiency;
  • Increased operational balance;
  • Increased budget liquidity.

A negative rating action may be prompted by:

  • Increased mandatory expenses due to increased debt load;
  • Changes to the debt repayment schedule (increased short-term sources of financing). 

Issue ratings

Tambov Region Government Bond, 35002, (ISIN RU000A0JWT75); maturity date: September 20, 2023; issue volume: RUB 1.6 bln – BBB+(RU).

Tambov Region Government Bond, 35003, (ISIN RU000A0JXVH8); maturity date: July 12, 2024; issue volume: RUB 3.5 bln – BBB+(RU).

Tambov Region Government Bond, 35004, (ISIN RU000A0ZYJ18); maturity date: December 5, 2025; issue volume: RUB 3 bln – BBB+(RU).

Rationale. The Agency is of the opinion that bonds issued by the Tambov Region have a status of senior unsecured debt. Credit ratings of such debt instruments correspond to the credit rating of the Tambov Region.

Regulatory disclosure

The credit ratings of the Tambov Region and bonds issued by the Tambov Region (ISIN RU000A0JWT75, RU000A0JXVH8, RU000A0ZYJ18) 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 credit ratings to the bond issues above, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation has also been used.

The credits rating assigned to the Tambov Region and the bonds (RU000A0JWT75, RU000A0JXVH8, RU000A0ZYJ18) issued by the Tambov Region were first published by ACRA on July 3, 2017, July 14, 2017, July 11, 2017, and December 13, 2017, respectively. The credits ratings assigned to the Tambov Region and the bonds (ISIN RU000A0JWT75, ISIN RU000A0JXVH8, ISIN RU000A0ZYJ18) issued by the Tambov Region are expected to be revised within 182 days following the publication date of this press release as per the Calendar of planned sovereign credit rating revisions and publications.

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

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

ACRA provided no additional services to the Tambov Region Administration. No conflicts of interest were discovered in the course of credit rating assignment and affirmation.

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