ACRA affirms AA-(RU) to the Belgorod Region, changes outlook to Negative, affirms AA-(RU) bond issues, and assigns AA-(RU) to RU34016BEL0 bond

The credit rating of the Belgorod Region (hereinafter, the Region) is based on the Region’s moderately low debt load and sustainable budget profile, which is characterized by moderately high shares of internal revenues and capital expenses. The rating is limited by the regional budget’s dependence on the metal industry and the negative modified budget deficit in the current and forecast periods, indicating that there is a need to attract debt financing.

The change in outlook reflects ACRA’s expectations of a sharp decline in the Region’s available liquidity along with increased debt load due to financing the projected budget deficit because of a significant increase in expenses in 2020.

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

If expenses increase, increased transfers will offset decreased internal revenues. According to the Region, internal revenues in 2020 will decrease 9% compared to 2019 (RUB 7.2 bln). An increase in transfers by nearly a third in 2020 will keep total budget revenues from falling, in fact they will increase by 0.4% for the year (RUB 0.4 bln). However, along with revenue growth, the Region expects a significant increase in spending in 2020 by 10% (RUB 10.7 bln) compared to 2019. According to the Region, the budget deficit in 2020 will amount to RUB 12 bln. The Region plans to finance this deficit partly with accumulated liquidity and partly by increasing debt.

ACRA believes that the high flexibility of budget expenses can allow the Region to reduce the projected deficit, for example, by reducing capital expenses relative to the projected volume.

Internal revenues in the budget remain moderately high, despite a significant forecasted increase in transfers. The averaged1 share of internal revenues in 2017−2021 should equal 80%. The share of capital expenses in total expenses (excluding subventions) should decrease slightly from 21% to 20%. However, the averaged share of capital expenses in 2017−2021 should remain almost unchanged at about 21%. The averaged ratio of the current account balance to current revenues should equal 14%, while the ratio of the averaged modified budget deficit to current revenues is expected to be -3%. These indicators show that current revenues are sufficient to cover current expenses, but borrowed funds will be required to finance capital expenses.

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

Debt load will increase, but will remain at a moderately low level. Since the beginning of 2020, debt has not changed significantly and amounted to RUB 30.9 bln as of September 1, 2020. The Region’s debt is 56% bonds, 30% budget loans, 10% guarantees, with the remainder being bank loans. The debt repayment schedule is balanced, and there are no significant peaks. If the current repayment schedule on restructured budget loans remains unchanged, the Region will have to pay no more than 20% of its debt annually over the next five years. As of the date of this press release, the Region will have to repay 3% of its debt (RUB 0.9 bln) by the end of this year.

At the end of 2019, the Region’s debt to current revenues ratio stood at 31%. According to ACRA, this figure may grow to 39% by the end of 2020 due to an expected increase in budget expenses with no revenue growth. The Region’s interest expenses are not burdensome. The averaged level of interest expenses for 2017–2021 should be around 2% of total budget expenses (excluding subventions).

Budget liquidity may fall sharply. Since the beginning of 2019, account balances at the end of the month accounted for about 80–90% of monthly budget expenses. However, most of the Region’s free liquidity could be used to finance a possible deficit at the end of this year.

The Region and the Federal Treasury Department concluded agreements on the provision of budget loans in 2020, but they have not been attracted yet. As of September 1, 2020, the Region has no open, unused credit lines with a repayment period of more than one year.

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.

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

  • Internal revenues declining by no more than 9% in 2020 vs. 2019;
  • Budget expenses growing by no more than 5% and capital expenses lower than the target;
  • Executing the 2020 budget with a deficit of no more than 10% of TNTR;
  • Growth in transfers in line with the forecast parameters;
  • Debt growing by no more than 20% compared to the start of the year;
  • Maintaining a conservative debt management policy;
  • Maintaining the current level of available liquidity.

Potential outlook or rating change factors

The Negative outlook assumes that the rating may be downgraded within the next 12–18 months.

A positive rating action may be prompted by:

  • Considerable decline in budget expenditures compared to the target;
  • Higher budget liquidity;
  • Ratio of debt to current expenditures consistently below 30%;
  • Consistently positive modified budget deficit.

A negative rating action may be prompted by:

  • 2020 budget deficit exceeding 10% of internal revenues;
  • Debt load exceeding 40% of the Region’s current revenues;
  • Significant decline in 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);

Belgorod Region Government, 34014 (ISIN RU000A101PA0), maturity date: May 16, 2025, issue volume: RUB 3 bln — АA-(RU);

Belgorod Region Government, 34015 (ISIN RU000A101RB4), maturity date: May 29, 2025, issue volume: RUB 2.7 bln — АA-(RU).

Key issue characteristics (RU34016BEL0)

Issue volume

RUB 4.5 bln


- / RU34016BEL0

Placement start date/maturity date

September 24, 2020 / September 18, 2025


Rationale. In ACRA’s opinion, the bonds issued by the Belgorod Region listed above are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of the Belgorod Region — AA-(RU).

Regulatory disclosure

The credit ratings of the Belgorod Region and the bonds (ISIN RU000A0JXTW1, RU000A100PP0, RU000A100Y84, RU000A101PA0, RU000A101RB4) issued by the Belgorod Region and also the bond issued by the Belgorod Region (RegS RU34016BEL0) 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 credit ratings to the bond 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 ratings assigned to the Belgorod Region and the bonds (ISIN RU000A0JXTW1, RU000A100PP0, RU000A100Y84, RU000A101PA0, RU000A101RB4) issued by the Belgorod Region were published by ACRA for the first time on June 13, 2017, June 19, 2017, August 5, 2019, October 16, 2019, May 19, 2020, and June 1, 2020, respectively. A credit rating has been assigned to the bond of the Belgorod Region (RegS RU34016BEL0) for the first time. 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 were assigned based on the 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 statements 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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