ACRA has upgraded the credit rating of the Krasnoyarsk Krai (hereinafter, the Region) as the Region’s debt load has reduced due to the high growth rates of tax revenues and a balanced debt repayment schedule. The rating is limited by moderate socioeconomic development, low economic diversification, and the low flexibility of budget expenses.
The Region is a part of the Siberian Federal District. The Region’s population is nearly 2.9 mln people and its GRP is 2.5% of the total GRP of Russian regions.
Key rating assessment factors
Budget indicators have increased with high TNTR growth rates. The ongoing period of high ruble prices for extracted raw materials and primary processing goods has allowed the Region to increase the volume of tax revenues for the eight months of 2019 by 33% (RUB 38.4 bln) compared to the same period in the previous year. The main driver of growth has been income taxes, whose revenues have increased by 67% (RUB 33.4 bln) compared to last year. The Region’s expenses for the same period have increased by only 5% (RUB 6.4 bln). The budget surplus for the first eight months of this year amounted to about RUB 30 bln (19% of TNTR for this period). The region expects a surplus at the end of 2019 in the amount of 2% of TNTR (RUB 5.5 bln), which, together with part of the account balances, will be aimed at reducing the debt.
The Region is characterized by low budget flexibility due to high mandatory expenses (73% on average in 2016-2018), which is below average according to ACRA’s methodology. ACRA expects mandatory expenses to decrease to 69-70% in 2019. The ratio of operating balance and regular income continues to grow; the target for 2019 is 30% compared to 20% in 2016. Capital expenses stayed between 15 and 17% in 2016-2018 and ACRA expects this figure to remain unchanged throughout the forecast period. This is a moderate assessment of budget discipline and control according to ACRA’s methodology.
The Region’s debt load has reduced due to the high growth rates of tax revenues. The Region's debt to operating balance ratio fell from 2.5x in 2016 to 1.7x in 2018. ACRA expects a further decline to 1.4x at the end of 2019, which is a moderate risk according to ACRA’s methodology. In addition, ACRA expects the ratio of the operating balance excluding interest expenses to the volume of debt repayment in the current period to increase far above 3.0x by the end of 2019, which would correspond to the minimum level of risk. The cost of debt servicing relative to the operating balance should remain at 10-11%. As of September 1, 2019, the Region’s debt amounted to RUB 93 bln and was made up of bonds (75%) and budget loans (25%). Due to the annual surplus, the Region has repaid all bank loans (RUB 7 bln, repayment was scheduled for 2020). By the end of the year, the Region needs to refinance about 12% of its total debt (RUB 11 bln; bonds and budget loans). Over the next four years, the Region will refinance an average of 16% of its current debt.
The Region will comply with the terms of budget loan restructuring when executing its budget as planned at end of 2019. This will allow the Region to maintain a reduced debt load in the case of a short-term reduction in TNTR.
- Maintaining the growth rate of tax revenues in accordance with the planned indicators;
- Executing the budget without a deficit;
- Maintaining a balanced debt 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:
- Executing the budget with a surplus of more than 2% TNTR at the end of 2019;
- Reducing debt while reducing the debt to operating balance ratio;
- Further growth in the operating balance to mandatory expenses ratio.
A negative rating action may be prompted by:
- Increased debt load and absolute debt;
- Increased mandatory expenses by 5% or more in 2019.
Krasnoyarsk Krai, 35016 (ISIN RU000A0ZZM87), maturity date: September 12, 2025, issue volume: RUB 12 bln — А+(RU).
Krasnoyarsk Krai, 35015 (ISIN RU000A0ZZC48), maturity date: June 26, 2025, issue volume: RUB 12 bln — А+(RU).
Krasnoyarsk Krai, 35014 (ISIN RU000A0ZYFB8), maturity date: October 31, 2024, issue volume: RUB 7.8 bln — А+(RU).
Krasnoyarsk Krai, 34013 (ISIN RU000A0ZYCM2), maturity date: October 3, 2024, issue volume: RUB 10 bln — А+(RU).
Krasnoyarsk Krai, 34012 (ISIN RU000A0JWXF0), maturity date: October 25, 2023, issue volume: RUB 18.231 bln — А+(RU).
Krasnoyarsk Krai, 34011 (ISIN RU000A0JVWM0), maturity date: October 29, 2019, issue volume: RUB 4.25 bln — А+(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 Krasnoyarsk Krai.
The credit ratings have been assigned to the Krasnoyarsk Krai and bonds issued by the Krasnoyarsk Krai (RU000A0ZZM87, RU000A0ZZC48, RU000A0ZYFB8, RU000A0ZYCM2, RU000A0JWXF0, RU000A0JVWM0) 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 process of credit rating assignment to the above 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 rating of the Krasnoyarsk Krai and the credit ratings of bonds issued by the Krasnoyarsk Krai (RU000A0ZZM87, RU000A0ZZC48, RU000A0ZYFB8, RU000A0ZYCM2, RU000A0JWXF0, RU000A0JVWM0) were published by ACRA for the first time on October 9, 2017, September 21, 2018, July 2, 2018, November 7, 2017, October 10, 2017, October 10, 2017, and October 10, 2017, respectively.
The credit rating of the Krasnoyarsk Krai and its outlook as well as the credit ratings of bonds issued by the Krasnoyarsk Krai (RU000A0ZZM87, RU000A0ZZC48, RU000A0ZYFB8, RU000A0ZYCM2, RU000A0JWXF0, RU000A0JVWM0) 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 data provided by the Krasnoyarsk Krai Government, 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 Krasnoyarsk Krai Government participated in the rating process.
No material discrepancies between the provided data and data officially disclosed by the Krasnoyarsk Krai in its financial report have been discovered.
ACRA provided no additional services to the Krasnoyarsk Krai Government. No conflicts of interest were discovered in the course of credit rating assignment.