ACRA has changed the outlook for the credit rating of the Krasnoyarsk Krai (hereinafter, the Region) based on the expectation that the debt load will stabilize at 35-37% of the current revenues after a substantial decline in 2019, while available cash on budget accounts will remain at a sufficient level.
The credit rating of the Region is based on its strong economic profile as well as stable budget profile indicators, high share of own revenues as well as debt repayment schedule posing no refinancing risk in the short term.
The Region is a part of the Siberian Federal District. The Region’s population is nearly 2.9 mln people, and its GRP equaled 2.7% of the total GRP of Russian regions in 2018.
The 2019 budget surplus of 15% of TNTR (RUB 36.6 bln) is largely attributed to high palladium prices. The revenues of the Region’s budget have increased 20% (RUB 47.2 bln) in 2019. Tax and non-tax revenues (TNTR) grew primarily due to higher corporate income tax revenues, which are up 49% (RUB 43.5 bln) from 2018. The growth was driven by palladium prices that increased 60% last year. ACRA expects the year-average price to decline throughout 2020. Considering the array of minerals extracted in the Region, ACRA assumes that corporate income tax revenues in 2020 will have no negative effect on the assessment of the Region’s budget and debt profiles.
The averaged1 share of own revenues reached 89% in 2017-2019 and will continue rising to 91% in 2020-2022. The share of capital expenditures in the Region should average 14% in 2016-2020 and stay around the same level until 2022. The modified budget deficit of the Region was negative, which indicated the need to raise additional debt financing. In 2019, this indicator turned positive owing to a substantial budget surplus.
The Region expects the TNTR to decline 12% and expenses to be up 2% in 2020. As a result, the Region estimates its budget deficit at 3% TNTR. The Region plans to finance the deficit by raising new debt, which, however, should not lead to any change in the debt profile assessment. ACRA also notes that available cash on budget accounts was three times the amount of planned deficit as at the beginning of the current year.
1 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.
The Region’s debt load has reduced significantly due to the budget surplus. In 2019, the Region's debt declined 21% (RUB 22 bln) and totaled RUB 82 bln. The debt to current revenues ratio was down to 30% as of end 2019 from 46% as of end 2018. ACRA expects this ratio to stabilize at 35-37% in 2020-2021 if TNTR decline, while budget spending is kept under control.
As of January 1, 2020, the Region’s debt comprised bonds (73%) and budget loans (27%). The amount of issued guarantees is negligible. The interest expenses averaged for 2016-2020 will be around 3% of the total budget revenues excluding subventions. The Region has to repay or refinance up to RUB 7 bln (8% of the total debt) in the remaining months of 2020. In 2021-2024, the Region will be refinancing/repaying 22% of its debt obligations on average.
The debt load of municipal entities has been declining. The total debt of municipal entities to their total TNTR ratio has declined from 37% in 2016 to 32% in 2019.
The accumulated liquidity will allow reducing refinancing risks with respect to the debt to be repaid. In the last 18 months, available cash on accounts as of month-end exceeded half of monthly expenses of the Region’s budget. Since September 2019, the Region has been placing its cash balances in deposits. As of January 1, 2020, the accumulated liquidity covered around 28% of the Region’s total debt, which is comparable to the amount of debt maturing in the next two years.
Moderately high concentration on the metals sector determines the Region’s economic profile. The averaged GRP per capita of the Region stood at 133% of the country average. ACRA notes that the per capita GRP of the Region was growing faster than the country average in 2013-2017. The ratio of averaged wages to regional subsistence minimum exceeded 300% in 2015-2018. In 2019, the averaged unemployment calculated according to the ILO methodology totaled 5.1%.
ACRA estimates that 30% to 40% of tax revenues in the Region’s budget were attributed to the metallurgy and non-ferrous metals sectors in the past. Two largest taxpayers of the Region work in these sectors. Extraction of fossil fuels contributes up to 15% of tax revenues.
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:
A negative rating action may be prompted by:
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).
Rationale. In ACRA’s opinion, the bonds listed above are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of the Krasnoyarsk Krai.
The credit ratings have been assigned to the Krasnoyarsk Krai and bonds issued by the Krasnoyarsk Krai (RU000A0ZZM87, RU000A0ZZC48, RU000A0ZYFB8, RU000A0ZYCM2, RU000A0JWXF0) 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 ratings 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.
The credit rating of the Krasnoyarsk Krai and the credit ratings of bonds issued by the Krasnoyarsk Krai (RU000A0ZZM87, RU000A0ZZC48, RU000A0ZYFB8, RU000A0ZYCM2, RU000A0JWXF0) were published by ACRA for the first time on October 9, 2017, September 21, 2018, July 2, 2018, November 7, 2017, October 10, 2017, and October 10, 2017, respectively.
The credit rating of the Krasnoyarsk Krai and its outlook as well as the credit ratings of bonds issued by the Krasnoyarsk Krai (RU000A0ZZM87, RU000A0ZZC48, RU000A0ZYFB8, RU000A0ZYCM2, RU000A0JWXF0) 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 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 Government. No conflicts of interest were discovered in the course of credit rating assignment.
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