ACRA affirms the Samara Region at AA(RU), outlook Stable, and bonds at AA(RU)

The credit rating of the Samara Region (hereinafter, the Region) is based on the moderate debt burden and its smooth repayment schedule, high self-sufficiency of the budget and its high liquidity. The rating is constrained by economic development indicators, some of which are below the national average.

The Region is located in the Volga Federal District and ranks 11th in the Russian Federation in gross regional product (GRP). The Region’s population is 3.2 mln people.

Key rating assessment factors

Moderate debt load with a smooth repayment schedule. ACRA estimates the total debt of the Region in 2019 and 2020 to remain at the 2018 level. The debt to operating balance ratio is expected to be around 105% by the end of 2020. The Region’s debt load in 2019 and 2020 will be substantially lower than the figures set forth in the budget loan restructuring agreements. Bonds represent two thirds of the Region’s debt, with budget loans accounting for the rest. In view of this fact, the total annual repayment (refinancing) amount is below 16% of the current debt (RUB 8.7 bln or less). The operating balance less interest expenses in 2019-2020 is estimated to be over three times the amount of debt to be repaid in the respective year, which indicates a low refinancing risk for the Region’s debt obligations in the above period. Debt servicing costs are not burdensome for the Region’s budget.

Highly self-sufficient budget with moderate flexibility in budget expenses.
The Region’s budget has high level of own revenues: in 2017-2020, the share of own revenues will average 89%. Mandatory (according to the ACRA methodology) and capital expenses in the above period will average 70% and 17% of the total budget expenses, respectively, and the operating balance of the Region has continuously ranged from 25% to 32%, which indicates a moderate flexibility of the budget expenses. According to the regional budget law, the Region’s 2019 budget may be executed with a deficit of 7% of tax and non-tax revenues (TNTR). ACRA estimates the deficit to be significantly lower, with the bulk of it to be covered by funds accumulated in the previous years.

High budget liquidity. The Region regularly places funds in deposits, the total amount of which is more than double the average monthly budget expenses in January-September 2019. As of November 1, 2019, the amount of funds placed by the Region in bank deposits was around 54% of its debt liabilities. Managing temporarily free budget balances allows the budget to take in additional revenues and partially offset debt-servicing expenses.

Diversified economy with developed industry. The Region’s main economic drivers are the processing industry (22.2% of GRP in 2017) and oil production (16.5% of GRP in 2017). Vehicle manufacturing and chemical production dominate the Region’s processing industry, accounting for 41% and 16% of goods shipped in 2017, respectively.

Per capita GRP and per capita income over the reviewed period amount to 85% and 87% of the national average, respectively, with unemployment being below the national average.

Key assumptions

  • Maintaining TNTR in 2019 and 2020 at the 2018 level;
  • Controlling the growth rates of mandatory budget expenses in 2019 and 2020;  
  • Maintaining a conservative debt policy. 

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:

  • Improvement in some of the Region’s economic indicators compared to national averages;
  • Reduction of mandatory budget expenses in the Region.

A negative rating action may be prompted by:

  • Reduction in revenues from the main sources of tax income due to worsening market conditions and reduced industrial production;
  • Substantial reduction of the development budget (capital expenses) in the total budget of the Region;
  • Increase in debt load. 

Issue ratings

The Samara Region, 35013 (ISIN RU000A0JXT41); maturity date: May 31, 2024, issue volume: RUB 10.0 bln — AA(RU).

The Samara Region, 35009 (ISIN RU000A0JU2H5); maturity date: July 31, 2020, issue volume: RUB 8.3 bln — AA(RU).

The Samara Region, 35010 (ISIN RU000A0JUQP7); maturity date: July 1, 2021, issue volume: RUB 12.0 bln — AA(RU).

The Samara Region, 34011 (ISIN RU000A0JVK00); maturity date: June 18, 2020, issue volume: RUB 7.0 bln — AA(RU).

The Samara Region, 35012 (ISIN RU000A0JWM56); maturity date: June 21, 2024, issue volume: RUB 10.0 bln — AA(RU).

The Samara Region, 35014 (ISIN RU000A0ZZ9P8); maturity date: June 04, 2026, issue volume: RUB 8.0 bln — AA(RU).

Credit rating rationale. Bonds issued by the Samara Region are a senior unsecured debt, and their credit ratings are on par with the rating of the Samara Region.

Regulatory disclosure

The credit ratings were assigned to the Samara Region and the bonds (ISIN RU000A0JXT41, RU000A0JU2H5, RU000A0JUQP7, RU000A0JVK00, RU000A0JWM56, RU000A0ZZ9P8) issued by the Samara Region 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 Analytical Credit Rating Agency within the Scope of Its Rating Activities. To assign credit ratings to the above bond issues, ACRA also applied the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation.

The credit ratings assigned to the Samara Region and the government bonds (ISIN RU000A0JXT41, RU000A0JU2H5, RU000A0JUQP7, RU000A0JVK00, RU000A0JWM56, RU000A0ZZ9P8) issued by the Samara Region were first published by ACRA on December 28, 2016, June 5, 2017, July 7, 2017, July 7, 2017, July 7, 2017, July 7, 2017, June 6, 2018, respectively. The credit ratings assigned to the Samara Region and the government bonds (ISIN RU000A0JXT41, RU000A0JU2H5, RU000A0JUQP7, RU000A0JVK00, RU000A0JWM56, RU000A0ZZ9P8) issued by the Samara 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 Government of the Samara 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 Government of the Samara Region participated in their assignment.

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

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

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