ACRA assigns AAA(RU) to the Khanty-Mansiysk Autonomous Okrug - Ugra, outlook Stable

The credit rating was assigned to the Khanty-Mansiysk Autonomous Okrug – Ugra (hereinafter, the Okrug, or the Region) based on highly developed regional economy, high liquidity of the budget and minimum risk of debt load.

The Okrug is located in the Ural Federal District and borders six regions of Russia. The population is 1.6 mln people. The capital of the Okrug – Khanty-Mansiysk – is the fourth largest city of the Region in terms of population (98,700 people). The Region’s GRP amounted to RUB 3,136.8 bln in 2015 (the third largest figure in Russia after Moscow and the Moscow Region).

Key rating assessment factors

Oil-producing region with high per capita income and low unemployment. The oil&gas industry generates 67% of the Region’s GRP (on average in 2013-2015). The Okrug is one of the donor regions for the federal budget. In 2014-2016, on average 12.5% of the total payments collected in the Okrug and received by the consolidated budget of the Russian Federation remained in the Region’s budget. GRP and per capita income significantly exceed the national average figures (4.3x and 1.4x, respectively). Unemployment (according to ILO methodology) is 18% below the national average. Oil and gas producers are the largest employers (26% of the employed population). Social infrastructure development is assessed as high. Since 1990, the population increased 30%. The Okrug is one of Russia’s seven leading regions in terms of natural population growth. Urban population (92%) significantly exceeds the national average (74%).

Highly self-sufficient and modetarely balanced budget. In 2014-2017, the share of tax and non-tax revenues was 97% of the total revenues (excluding subventions) on average. Tax revenues are marked by highly volatile corporate income tax proceeds (in 2014-2017, their share in the budget revenues varied from 31% to 49%). The Region’s budget proceeds from personal income tax and property tax have been consistently increasing for over 12 years. In 2016-2017, 54% of budget spending was financed using the above proceeds (vs 39% in 2011-2012). The Region provides resident companies with significant income and property tax benefits (totaling RUB 9.6 bln in 2016 and RUB 28.7 bln in 2015). Among companies enjoying reduced corporate income tax rate, oil&gas companies prevail. During high-revenue periods (as 2014 and 2015 for instance) the Okrug’s administration moderately increases spending, which results in a budget surplus and accumulation of financial reserves used to co-fund expenses in the periods of budget deficit. Relatively high mandatory spending is related to the need to maintain financing of the social sphere: from H1 2013 to H1 2017, the number of key categories of public sector employees in the Okrug decreased 2.6%, while the national average decrease equaled 8.4%.

Regional authorities make additional transfers to the budget of the territorial compulsory medical insurance fund. Capital expenditures planned for 2017-2019 are below capital expenditures made in 2014-2016. Social infrastructure objects are built as part of both government or municipal contracts and public-private partnerships including concession agreements and buyouts. Using public-private partnership instruments has a positive effect on the budget’s flexibility. This is why, reduced capital spending on social infrastructure construction planned for 2017-2019 is not considered a sign of development budget cutting.

Debt load corresponds to the minimum risk level. 87% of the debt portfolio are bonds (to be repaid through 2023), and 13% of it are fiscal loans (with repayment until 2019). The Okrug regularly places deposits that have been substantially exceeding regional debt since January 1, 2015. As at August 1, 2017, budget account balances (including deposits) were 1.6x higher than its debt (by RUB 10.7 bln).

High financial reserves allow for financing quarterly deficit without significantly increasing the debt level. Over five consecutive quarters (from Q2 2015 to Q2 2017, inclusively), the regional budget is executed with a cash gap 95% of which were financed using financial reserves of the Region. Budget cash reserves (including deposits) regularly exceed current-month expenses.

Key assumptions

  • Maintaining social spending in 2017-2019 at the level approved in the respective government programs of the Region effective as at September 15, 2017;
  • Annual proceeds of the regional budget from corporate income tax payments are at least RUB 52 bln in 2018-2019;
  • Property tax proceeds increase annually by at least RUB 2 bln in 2017-2019;
  • Maintaining high liquidity of the budget.

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 negative rating action may be prompted by:

  • Higher social spending by the Okrug’s budget without respective increase in its revenues;
  • Substantial decrease of budget’s cash reserves;
  • Significant change in the inter-budget relations in Russia.

Issue ratings

None.

Rating history

None.

Regulatory disclosure

The credit rating has been 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.

The credit rating has been assigned to the Khanty-Manskiysk Autonomous Okrug for the first time. The credit rating and credit rating outlook are expected to be revised within 182 days following the rating action (September 22, 2017).

The credit rating was assigned based on the data provided by the Khanty-Manskiysk Autonomous Okrug, 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 rating is solicited, and the Khanty-Manskiysk Autonomous Okrug participated in its assignment.

No material discrepancies between the data provided and the data officially disclosed by the Khanty-Manskiysk Autonomous Okrug in its financial report have been discovered.

ACRA provided no additional services to the Khanty-Manskiysk Autonomous Okrug. No conflicts of interest were discovered in the course of credit rating assignment.

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