ACRA affirms AA-(RU) to the Belgorod Region, outlook Stable, and AA-(RU) to bond issues

The credit rating of the Belgorod Region (hereinafter, the Region) is based on the Region’s low debt load and sustainable budget profile, which is characterized by moderately high shares of internal revenues and capital expenditures. The rating is under pressure from the regional budget's dependence on the metal industry and the negative modified budget deficit in the forecast period.

The Belgorod Region is part of the Central Federal District. 1.5 million people live in the Region (1% of the population of the Russian Federation). According to the Region's estimates, the 2019 GRP amounted to RUB 912 bln (about 1% of the total GRP of Russian regions).

Key rating assessment factors

Flexible budget expenditures and the low need for debt financing will balance the budget amid a possible decline in revenues. In 2019, the regional budget deficit amounted to 2% (RUB 1.8 bln) of tax and non-tax revenues (hereinafter, TNTR, internal revenues). Internal budget revenues grew by 5% largely on higher personal income tax revenues, which showed a significant increase of 16% (RUB 2.6 bln), as well as excise tax revenues, which grew by 13% (RUB 0.8 bln). Federal budget transfers increased by 21% (RUB 4.2 bln) compared to 2018. Last year, aggregate budget revenues increased by 9%, and expenditures — by 21% (RUB 18.1 bln).

The regional budget law provides that by the end of 2020, the internal revenues and expenses are to grow by 4% and 6%, respectively. According to ACRA forecasts, in 2020, due to unfavorable macroeconomic situation, the decline in tax revenues may reach about 15%. ACRA expects that in this case, the Region will have to reduce budget expenditure in order to maintain the deficit at the level of no more than 10% of TNTR.

The share of internal revenues in the regional budget remains moderately high: the average1 share of such revenues is expected to reach 80% in 2016–2020. Budget expenditures are likely to be reduced by cutting capital expenditures, the average share of which in the total expenditures of the Region (excluding subventions) is estimated at about 19–20% in the same period. In 2016–2020, the average ratio of current operations balance to current revenues (as per ACRA's methodology) may reach 15%, and the ratio of averaged modified budget deficit to current revenues is expected to be close to 0%. This indicates that current revenues are adequate to cover current expenses and the need for borrowings to finance capital expenditures is low.


1 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.

Moderately low debt load. At the end of 2019, the Region's debt amounted to RUB 29.7 bln, which is 10% (RUB 3.3 bln) less than in 2018. At the same time, the ratio of debt to current revenues decreased from 36% to 31%. According to the regional Budget Law, the Region's debt is be reduced by another 12% (RUB 3.5 bln), which may reduce
the debt load to 28%. However, according to ACRA estimates, in late 2020, due to a possible decline in the Region’s internal revenues, the ratio of debt to current revenues may go up to 33%, which corresponds to a moderately low debt load.

In early 2020, the Region's debt was represented by bonds (44%), budget loans (31%), bank loans (14%), and guarantees (11%). The share of interest expenses in the total budget expenditures is at a consistently low level (2%). In 2020, the Region will have to repay (refinance) 26% of its debt obligations (RUB 7.8 bln), in 2021 — 20% (RUB 5.8 bln). As of April 1, 2020, the Region repaid RUB 3 bln of bank loans maturing this year. At the beginning of 2020, account balances were comparable with debt liabilities payable in 2020.

A moderately diversified economy with a focus on metal industry. According to ACRA's estimates, the average share of the Region's tax revenues from the sectors of metal ore mining and metal production amounted to 38% in 2016–2019. In 2019, the three largest regional taxpayers operating in the metal sector accounted for 33.6% of tax revenues. ACRA notes the risks associated with the projected decline in the Region’s budget revenues coming from metal companies amid the volatile macroeconomic situation. At the same time, ACRA believes that the Region's budget and debt policy will allow it to overcome the short-term decrease in TNTR by 15% against the level of 2019 without any changes in the credit quality.

In 2015–2018, the average per capita GRP in the Region amounted to 98% of the country average. In the period from 2016 to 2019, unemployment rate in the Region did not exceed 4%. In 2019, the average monthly salary exceeded the regional subsistence minimum by more than three times.

Key assumptions

  • The Region’s internal revenues to decline by not more than 15% in 2020 vs 2019;
  • The Region to cut expenditures in case actual revenues are below the planned level;
  • The 2020 budget deficit not to exceed 10% of TNTR;
  • Maintaining a conservative debt management 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:

  • Growing budget liquidity;
  • The ratio of debt to current expenditures sustainably below 30%;
  • Sustainably positive modified budget deficit.

A negative rating action may be prompted by:

  • The 2020 budget deficit exceeding 10% of internal revenues;
  • The Region's debt load exceeding 40% of its current revenues;
  • A significant decline in the available liquidity.

Issue ratings

Belgorod Region Government, 35011 (ISIN RU000A0JXTW1), maturity date: June 11, 2024; issue volume: RUB 4 bln — AA-(RU).

Belgorod Region Government, 34012 (ISIN RU000A100PP0); maturity date: August 5, 2024; issue volume: RUB 2 bln — АA-(RU).

Belgorod Region Government, 34013 (ISIN RU000A100Y84); maturity date: October 15, 2024; issue volume: RUB 2 bln — АA-(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 Belgorod Region.

Regulatory disclosure

The credit ratings of the Belgorod Region and the bonds (RU000A0JXTW1, RU000A100PP0, RU000A100Y84) issued by the Belgorod Region were 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 issues above, 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 ratings assigned to the Belgorod Region and the bonds (RU000A0JXTW1, RU000A100PP0, RU000A100Y84) issued by the Belgorod Region were published by ACRA for the first time on June 13, 2017, June 19, 2017, August 5, 2019, and October 16, 2019, respectively. The credit rating of the Belgorod Region and its outlook and the credit ratings of the bonds issued by the Belgorod 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 data provided by the Belgorod Region, 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 Government of the Belgorod Region participated in their assignment.

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

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

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