ACRA affirms BBB(RU) to the Tomsk Region, outlook Stable, and BBB(RU) to bond issues

The credit rating assigned to the Tomsk Region (hereinafter, the Region) is based on the moderate level of debt load in relation to the Region’s operating income, average regional economic development compared to the national average, and moderate budget profile indicators. The credit rating is limited by debt refinancing risks combined with a small liquidity cushion, and the possible decline in internal revenues should the unfavorable situation in the hydrocarbon markets continue into the medium term.

The Tomsk Region is located in the Siberian Federal District and is home to 1.1 million people (0.7% of the Russian population). In 2018, the Region’s GRP amounted to RUB 579 bln, about 0.7% of the total GRP for all regions of the Russian Federation. Almost a third of the Region’s territory is unpopulated due to the large area of wetlands and forests. Tomsk is a major educational center and in 2018 the Region ranked third after Moscow and St. Petersburg in terms of the number of students per 10,000 inhabitants among Russian regions.

Key rating assessment factors

The Region needs to refinance over 40% of its debt obligations in the next two years and has a small liquidity cushion. At the end of 2019, the Region’s debt amounted to 51% of operating income (according to ACRA’s methodology). ACRA forecasts that the Region’s debt to operating income ratio may grow to 62% by the end of 2020 as a result of a possible reduction of tax and non-tax revenues and attracting of new loans to finance the budget deficit, which corresponds to a moderate debt load. As of January 1, 2020, the Region’s debt obligations included bonds (54%), budget loans (25%), and bank loans (21%). Debt servicing expenses are not a burden on the regional budget due to the high share of budget loans in the debt structure and commercial debt being substituted by Federal Treasury Department Loans over the course of the year (the average level1 of interest expenses in 2016–2020 should equal less than 2.7% of aggregate budget expenses, excluding subventions). The Region also issues bonds that are available for purchase by the general public and may be repaid before maturity date. Such bonds account for 20% of the Region’s total bonds as of January 1, 2020. The Region will have to repay 15% of its debt obligations in 2020, followed by 26% in 2021. As of January 1, 2020, account balances including unused limits for open credit lines, covered around 70% of repayments scheduled for 2020 and the deficit stipulated by the regional budget law for 2020.

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 budget indicators depend on income tax revenues. The volatility of income tax revenues is due to regional taxpayers who are part of the consolidated group of taxpayers, and oil price dynamics in rubles. The 2020 regional budget law envisages income tax revenues increasing by 13% year-on-year. However, according to ACRA, these revenues may be significantly lower than planned if the unfavorable situation in the hydrocarbon markets persists as well as due to the instability of the situation regarding disease control and prevention. The average share of capital expenses in 2016–2020 should amount to around 15% of total expenses (excluding subventions). On average the Region finances three-quarters of its capital expenses using internal revenues and only a quarter through transfers from the federal budget. This means capital expenses are a potential area where budget expenses can be reduced should income decline. The average share of internal revenues in the aforementioned period should equal 78%. In 2016–2020, the average ratio of the balance of current operations to operating income (according to ACRA’s methodology) will stand at 8%, and the ratio of the average modified budget deficit to operating income will amount to (-)5%. These indicators show that although operating income is sufficient to cover current expenses, it will be necessary to resort to borrowing to finance capital expenses.

The Region’s economy is dependent on oil production. Almost a third of the Region’s GRP (32% in 2018) comes from mining operations, mainly oil. Deterioration in the structure of remaining reserves, production in highly developed fields, and an increase in the share of hard-to-recover reserves have led to a decline in oil production in the Region over the past six years. GRP per capita remains below the national average (93% in 2018). Unemployment in the Region has fallen from 9.1% in 2011 to 5.5% in 2019. The average monthly wage to subsistence wage ratio in the Region exceeded 3.5x in 2019.

Key assumptions

  • Income tax revenues falling by no more than 50% in 2020 compared to 2019;
  • Reduction of capital expenses if the income target is not achieved.

Potential outlook or rating change factors

The Stable outlook assumes that the credit rating will most likely remain unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Maintenance of budget profile parameters amid reduced oil prices;
  • Execution of the 2020 budget with a deficit of less than 4% of internal revenues;
  • Lower reliance on external sources of liquidity.

A negative rating action may be prompted by:

  • A shift in the Region’s debt policy towards using short-term debt instruments;
  • Increase in debt by more than 15% accompanied by failure to increase budget income.

Issue ratings

Tomsk Region, 34055 (ISIN RU000A0JW1K9), maturity date: June 19, 2023, issue volume: RUB 7 bln — BBB(RU);

Tomsk Region, 34062 (ISIN RU000A0ZYMJ7), maturity date: December 19, 2024, issue volume: RUB 7 bln — BBB(RU).

Credit rating rationale. In ACRA’s opinion, the above bonds issued by the Tomsk Region are senior unsecured debt instruments, the credit ratings of which correspond to the rating of the Tomsk Region.

Regulatory disclosure

The credit ratings have been assigned to the Tomsk Region and to the bonds issued by the Tomsk Region (RU000A0JW1K9, RU000A0ZYMJ7) 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 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 for the Russian Federation was also used.

The credit rating of the Tomsk Region and the credit ratings of the issues of government securities of the Tomsk Region (RU000A0JW1K9, RU000A0ZYMJ7) were first published by ACRA on April 10, 2018.

The credit rating of the Tomsk Region and its outlook as well as the credit ratings of the issues of government securities of the Tomsk Region (RU000A0JW1K9, RU000A0ZYMJ7) 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 the data provided by the Administration of the Tomsk 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 Administration of the Tomsk Region participated in the rating process.

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

ACRA provided no additional services to the Administration of the Tomsk Region. No conflicts of interest were discovered in the course of credit rating process.

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