The credit rating of the Samara Region (hereinafter – the Region) is determined by the stable regional economy marked by a well-diversified sectoral structure, moderate budget risk, and long-term debt portfolio.
The Samara Region is located in the Volga Federal District and ranks 11th in the Russian Federation by gross regional product (GRP). The Region’s population is 3.2 mln, 2.6 mln of which reside in the Samara-Togliatti metropolitan area that ranks third in the RF by population after those of Moscow and St. Petersburg.
Key rating assessment factors
Well-diversified economy. The Region’s economy hinges on its well-diversified industrial base (25% of GRP). A highly developed federal-integrated transportation network ensures that local manufacturers have access to both federal and international sales markets (export sales make up roughly 30% of GRP), while reducing the reliance of the regional economy and budget on industry and market cycles. That said, in 2014–2016, specific GRP values and household incomes remained steadily below the national averages. ACRA does not anticipate any significant changes in the GRP or household income per capita dynamics in the medium term. In the long term, oil field depletion and reduced oil production volumes in the GRP structure (14%) will call for substitution by other industries in order to maintain the current production output in fiscal terms.
Stable budget indicators. The regional budget is characterized by a large share of own revenues based on a stable and well-diversified tax base: in 2013–2016, average income tax proceeds amounted to 34.6% of own revenues, while personal income tax proceeds accounted for 30%, on average. ACRA notes a growing pressure on the Region’s operating balance in 2013–2016 as a result of mandatory expenses (+21%) growing in excess of regular income (+10%). At the same time, in ACRA’s opinion, should tax proceeds from specific industries run short, the Region has an ample safety cushion that will allow it to boost revenues by tax breaks granted to oil production companies (an estimated 10% of aggregate 2013–2015 income tax proceeds).
Well-balanced debt portfolio structure. To a considerable degree, the predominance of long-term bonds in the regional debt structure (46% as of year-end 2016) shields its budget from cost of debt risk. In ACRA’s opinion, in the long term, refinancing risk with regards to the Region’s debt portfolio will be minimized due to further replacement of bank loans by long-term bond issues (with up to 7 years maturities) and a step-by-step debt load reduction to the target level of 48% of own revenues by maintaining an own revenue surplus.
Key assumptions
- Maintaining the current industrial output dynamics;
- Bond issuance in order to replace bank financing of budget deficit;
- Own revenues exceeding mandatory expenditures;
- Stable social expenditure structure;
- Maintaining a proactive liquidity management 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:
- Leveling of specific regional GRP values and household incomes with the national averages;
- Operating balance increase by way of boosting own revenues.
A negative rating action may be prompted by:
- Industrial output reduction due to deteriorating market conditions.
- Increase of mandatory expenses share in the budget structure.
Issue ratings
No outstanding issues have been rated.
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.
A credit rating has been assigned to the Samara Region for the first time. The credit rating and its outlook are expected to be revised within 182 days following the rating action (December 27, 2016).
The assigned credit rating is based on the data provided by the Samara 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 Samara Region participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by the Samara Region in its financial report have been discovered.
ACRA provided no additional services to the Samara Region. No conflicts of interest were discovered in the course of credit rating assignment.
