Training on Forecasting, April 7–8

ACRA assigns BBB(RU) to the Tver Region, outlook Stable, and BBB(RU) to bond issues

The credit rating assigned to the Tver Region (hereinafter, the Region) is determined by a high level of debt burden versus the operating balance, moderate economic development indicators as compared to the national average, high self-sufficiency of the budget coupled with limited flexibility of fiscal spending and high liquidity.

The Tver Region is located in the Central Federal District and borders six Russian regions. Almost 1% of Russia’s population live in the Region; it produces 0.5% of the total Russian GRP. The Region generates 16% of the total electric power of the Central Federal District. The Region ranks second (after Moscow) among regions of the Central Federal District in terms of generated electric power (2016 data).

Key rating assessment factors

Traditional structure of the economy and important effects from proximity to metropolitan areas. Manufacturing enterprises (primarily food and vehicle manufacturing industries), transportation and communication, power, gas, and water generation and distribution are the key economic sectors in the Region. Low per capita GRP (vs the national average figures) and per capita income of the population limit the assessment of the Region’s economy. Although the Region’s economy has a potential for development owing to its geographic location (proximity to Moscow and St. Petersburg), this factor influences population drain.

Limited flexibility of fiscal spending with high self-sufficiency of the budget. The Region’s budget has high level of self-sufficiency (82% on average in 2014-2017 excluding subventions) and fairly diversified tax revenues. In 2013-2016, manufacturing enterprises had the largest share in its revenues (ranging from 21% to 27%). Almost a third of revenues from the manufacturing sector are excise duties on alcoholic products. However, the share of mandatory spending is high (78% on average). As a result, flexibility of fiscal spending is limited, and the operating balance averages 18% of regular revenues. In 2014-2016, the operating balance of the Region was on average at 10% of the regular revenues. Following 2017 results, the operating balance would decline to 16% of the regular revenues by virtue of increase in current spending on road construction, utilities, and social policy. In view of limited flexibility of fiscal spending, capital expenditures account for only 11% of budget expenses (according to 2014-2016 data and the Region’s 2017 forecast).

High debt load is offset by debt structure improvements. ACRA assumes that the Region would participate in fiscal loans restructuring program. According to the Agency’s projections, the debt to operating balance ratio may gradually decline from 3x as at year-end 2017 to 2.6x as at end-2019. Owing to a comfortable debt structure and liquidity management system, debt servicing expenses would be very low (around 6% of the operating balance) versus the level seen in 2014-2015 (18%-23%), which was driven by a higher share of commercial borrowings in the debt structure and higher interest rates. The ratio of operating balance less interest expenses to debt repayment amount would remain low in the current period.

However, by virtue of medium-term loans raised by the Region and following restructuring of debt to the federal budget, the debt profile would change affecting the projected figures of this indicator.

Commitments of companies from the quasi-public sector may affect budget targets of the Region. A Tver-based company of high social importance directly owned neither by the regional government nor by the city administration has a substantial amount of payables; the outlook for this debt to be settled is unclear. According to ACRA’s opinion, this indebtedness may bear risks for the regional budget. Therefore, the Agency deems reasonable to include these payables into secondary liabilities of public sector enterprises (despite lack of interrelation between the Region’s government and ultimate beneficiaries of the said organization).

High liquidity. The Region uses funds of public sector and autonomous government institutions in managing liquidity. Although the Tver Region has the right to place funds to deposits according to Article 236 of the Budget Code of the Russian Federation and has not raised any funds from the Federal Treasury Department in the last two years, the actual amount of available liquidity is insufficient to place it to deposits; it allows the Region, however, to timely perform its expenditure commitments including interest payments.

Key assumptions

  • Maintaining the share of the Region’s mandatory spending capped at 80% of budget expenses;
  • Maintaining the amount of transfers in 2018-2019 at the 2017 level;
  • Participation in fiscal loans restructuring program. 

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:

  • Financial standing improvement of quasi-public-sector companies operating in the Region;
  • Further structural improvement of debt repayment profile;
  • A lower share of mandatory spending in the Region’s budget.

A negative rating action may be prompted by:

  • A decrease in own revenues of the budget by 6% or more from values projected by ACRA;
  • A return to the practice of raising short-term bank loans;
  • Higher relative debt load.

Issue ratings

Credit rating rationale. In ACRA’s opinion, the below bonds issued by the Tver Region are senior unsecured debt instruments, and their credit rating is equal to the rating assigned to the Tver Region.

Key issue properties

1)     RegS / ISIN: RU34008TVE0 / RU000A0JTGN5

Issue volume / outstanding

RUB 3.0 bln / RUB 0.75 bln

Final placement date / Repayment date

December 24, 2012 / December 18, 2017


2)     RegS / ISIN: RU34009TVE0 / RU000A0JUAX5

Issue volume / outstanding

RUB 3.0 bln / RUB 0.75 bln

Final placement date / Repayment date

November 29, 2013 / November 22, 2018

Rating history


Regulatory disclosure

The credit ratings have been assigned to the Tver Region and to bonds issued by the Tver Region (RU000A0JTGN5, RU000A0JUAX5) 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 above, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation has also been used.

A credit rating has been assigned to the Tver Region for the first time. The credit rating and credit rating outlook are expected to be revised within 182 days following the rating action (December 8, 2017).

A credit rating has been assigned to the bonds of the Tver Region (RU000A0JTGN5, RU000A0JUAX5) for the first time. The credit rating is expected to be revised within 182 days following the rating action (December 8, 2017).

The credit rating was assigned based on the data provided by the Tver 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 rating is solicited, and the Tver Region Government participated in its assignment.

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

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

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