The credit rating of Tomsk (hereinafter, Tomsk, or the City) is based on the stable indicators of the City’s economy and the limited opportunities to increase the revenue base of the City’s budget. The rating is supported by a sustainable flow of tax revenues into the budget from the City’s industrial sector and a low debt load. The rating is limited by the dependence of the City’s budget on transfers from the budget of the Tomsk Region and a limited level of liquidity, which is insufficient to finance a possible deficit.
Tomsk is the administrative center of the Tomsk Region, which is part of the Siberian Federal District. The City had a population of 598,000 in 2019. ACRA estimates that the City accounts for about 30% of the Tomsk Region’s shipped products annually.
Key rating assessment factors
Economic development indicators are driven by major enterprises based in the City. Tomsk is home to major industrial enterprises, including Tomskneftekhim LLC (production of chemical organic substances), Gazprom Transgaz Tomsk LLC (pipeline transportation of gas), Gazpromneft-Vostok LLC (oil production), Tomskgazprom (natural gas production), KDV Group LLC (wholesale trade of foodstuffs), and Tomskoye Pivo OJSC (production of beer). Manufacturing accounts for the largest share (around 79%) in the structure of shipped products.
In 2019, the average1 nominal wage paid by companies operating in the City was almost 3.5 times higher than the subsistence wage in Tomsk. Official unemployment in the City is almost two times lower than unemployment in the Tomsk Region.
1 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.
Positive operating efficiency and low debt financing requirements. The City finished 2019 with a budget deficit of 3% (RUB 187 mln) of tax and non-tax revenues (TNTR). The City’s TNTR increased by 2% (+RUB 147 mln), mainly due to 7% (+RUB 239 mln) annual growth in personal income tax. In 2019, transfers increased by 20% (+RUB 1.9 bln) compared to 2018. The City’s aggregate income grew by 12%, while expenditures increased by 14%.
The decision on the City’s 2020 budget and planned period (2021–2022) envisages TNTR growing by 6% and expenditure falling by 2% in 2020. ACRA projects a decline in tax revenues in 2020. ACRA expects that should this happen, the City may go even further in cutting its budget expenditures compared to the target, while the deficit that forms will be covered primarily by borrowing and partially by account balances.
The average ratio of the balance of current operations to operating income should equal 5% in 2016–2020; a year earlier, this indicator stood at 6%.
The City’s modified budget deficit is negative: its average value for 2016 to 2020 should equal -0.02 (compared to -0.01 the year before). The positive operating efficiency coupled with low debt financing requirements enable the City to finance almost all of its current expenditures without resorting to borrowing.
The average share of TNR (excluding subventions) for 2016 to 2020 should amount to 58%. Most of the budget’s TNTR comes from personal income tax (48% in 2019), property taxes (23%), and total income taxes (15%).
The low debt load may grow considerably in the future in the event of limited liquidity. As of January 1, 2020, the City’s total debt amounted to RUB 3.6 bln, while the debt to operating income ratio was 23%. Bonds accounted for 53% of debt, 13% of which were bonds held by the general public. The remaining portion of debt was made up of commercial loans. All of the City’s debt needs to be repaid in 2020–2024, with 31% of debt reliabilities due in 2020. In ACRA’s opinion, the debt load may increase significantly in the conditions of economic decline and amid a fall in the City’s internal revenues. Although the City’s debt may amount to 34% of its operating income, its debt load should remain moderately low, according to ACRA’s methodology.
In 2019, the ratio of debt to TNTR was 49%. The considerable difference between the ratio of debt to TNTR and the debt to operating income ratio is due to the large volume of income received in the form of transfers, which is typical of the budgets of the majority of municipal entities. This ratio is forecast to equal 56% as of the end of this year; ACRA assumes that this indicator may grow to up to 72%.
Interest expenses are not burdensome: annually they amount to around 2% of expenditures (excluding subventions).
In 2019, the average monthly account balances of Tomsk’s budget covered no more than half of its monthly expenditures. Balances as of the start of the year coupled with available balances on open credit lines subject to repayment after more than one year covered around 38% of the City’s total debt. To cover cash gaps and to save money on interest payments, Tomsk uses short-term loans from the Federal Treasury Department to refinance the most expensive liabilities. ACRA believes that the City’s limited liquidity will prevent it from avoiding possible risks of refinancing debt liabilities and higher debts in the event of a deficit being recorded this year.
Key assumptions
- Budget deficit of no more than 18% of TNTR in 2020;
- Aggregate revenues falling by 16% in 2020 compared to 2019;
- Current expenditures declining by 10% compared to 2019 while maintaining the target for capital expenditures;
- Resorting to borrowing to finance a large part of the budget deficit.
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 :
- Reduced dependence on the regional budget;
- Growth of tax revenues due to a larger tax base;
- Longer-term borrowings;
- Execution of the budget without recording a deficit in 2020;
- Growth of operating efficiency of the budget coupled with reduced need for debt financing;
- Considerable growth in budget liquidity.
A negative rating action may be prompted by:
- Lower operating efficiency due to lower than expected internal revenues;
- Modified budget deficit falling below the current values;
- Reduced budget liquidity;
- Increased debt load.
Issue ratings
Rationale. In ACRA’s opinion, the bonds of Tomsk listed below are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of Tomsk, i.e. BBB(RU).
Key issue properties
1) RegS/ISIN: RU34006TOM1/RU000A0JWZ10
| Issue volume/outstanding | RUB 1 bln/RUB 400 mln |
| Issue date/maturity date | November 15, 2016/ November 14, 2021 |
2) RegS/ISIN: RU34007TOM1/RU000A1018A2
| Issue volume/outstanding | RUB 1 bln/RUB 1 bln |
| Issue date/maturity date | December 24, 2019/December 22, 2024 |
Regulatory disclosure
The credit ratings have been assigned to Tomsk and the bonds issued by Tomsk (ISIN RU000A0JWZ10, RU000A1018A2) 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 the credit rating assignment to the above issues, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments on the National Scale for the Russian Federation was also applied.
ACRA has assigned credit ratings to Tomsk and the issues of government securities of Tomsk (ISIN RU000A0JWZ10, RU000A1018A2) for the first time. The credit rating of Tomsk and its outlook as well as the credit ratings of the issues of government securities of Tomsk (ISIN RU000A0JWZ10, RU000A1018A2) are expected to be revised within 182 days following the publication date of this press release in compliance with the Calendar of planned sovereign credit rating revisions and publications.
The credit ratings were assigned based on the data provided by Tomsk, 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 Administration of Tomsk participated in the rating process.
No material discrepancies between the provided data and the data officially disclosed by Tomsk in its financial statements have been discovered.
ACRA provided no additional services to the Administration of Tomsk. No conflicts of interest were discovered in the course of credit rating assignment.
