The credit rating of the Komi Republic (the Republic, or the Region) is based on the high share of the budget’s own revenues, moderately low debt and medium liquidity of the budget. The rating level is constrained by the budget’s dependence on the mining sector and expectation of debt increase.
The Republic is located in the North-Western Federal District. A part of its territory belongs to the Far North area. About 820 thousand people (0.6% of the total Russian population) live in the Region. The Republic’s share in the total GRP of the Russian regions is 0.8%.
Key rating assessment factors
Moderate budget profile indicators. The Republic’s budget is highly self-sufficient (in 2017-2021, the averaged1 share of own revenues in the total revenues of the Region excluding subventions will exceed 90%). The averaged share of capital expenditures in the above period will be around 10% of total expenses (excluding subventions); on average, the Region finances three quarters of its capital expenditures from its own funds, while non-repayable federal budget funds cover only a third of such expenses. Due to the decline in the internal revenues in 2017–2021, the averaged ratio of current operations to current revenues (as per ACRA's methodology) will amount to 11%, and the ratio of modified budget deficit to current revenues ratio will be negative (-4%). This indicates that current revenues are sufficient to cover current expenditures and there is a need to raise debt to fund capital expenditures.
The republican budget law for 2020 provides for a deficit of RUB 7.4 bln. However, according to ACRA estimates, the actual budget deficit may turn out to be higher due to a significant reduction in tax and non-tax revenues (TNTR) caused by unfavorable oil market conditions. From January to May 2020, the Region's TNTR decreased by almost a quarter compared to the same period last year, including income tax revenues that plunged by more than a half.
1 Hereinafter, the averaging method was used as defined in the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.
Possible increase in debt load due to declining TNTR. As of the beginning of 2020, the Region’s debt amounted to 30% of the current revenues and comprised bonds (73%), budget loans (26.9%), and guarantees (0.1%). Lower budget revenues and growing debt as needed to cover the budget deficit may push the debt-to-current income ratio up to over 60% by the end of 2021, which indicates the moderate level of debt burden. The Republic will have to repay 12% of its debt obligations in 2020, and 25% in 2021. Debt service expenses are not heavy for the regional budget (the averaged interest expenses for 2017–2021 will be 3% of the total budget expenses excluding subventions). ACRA notes that the Republic still faces the risk that some public sector enterprises will require budget support to cover their financial indebtedness, which may affect the republican budget to some extent.
The Republic's own liquidity is sufficient to pay its obligations on time. As of the beginning of 2020, the available balance on the budget accounts covered 107% of the Republic’s budget obligations to be repaid this year.
Budget volatility is caused by the dependence on the largest taxpayers operating in the extractive sector. The extraction of minerals (oil, gas, coal), which accounted for 44.1% of the GRP in 2018, is the main driver of the industrial production and the GRP of the Republic. Together with the sub-sector "Production of petroleum products", the extractive sector generated 70% of the industrial output of the Republic in 2018. The GRP per capita is high (the Republic ranked 10th among Russia’s regions in 2018). The Region’s averaged monthly wage to subsistence wage ratio exceeded 3.6x and the averaged unemployment totaled 7.2% in the period from 2016 to 2019.
- TNTR to decline by no more than 30% in 2020 against 2019, and TNTR to grow by at least 10% in 2021 against 2020;
- If revenues decline below the budgeted level, the Region will cut budget expenses;
- Internal liquidity of the budget is maintained at a sufficient level.
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:
- 2020 budget deficit is at or below 3% of TNTR;
- Minimal debt growth in 2020;
- Sustainable growth of the internal budget liquidity.
A negative rating action may be prompted by:
- Maintaining current expenses of the Republic’s budget in 2020–2021 as set forth in the budget law in case budget revenues decline against the planned levels;
- Debt exceeding 70% of the current revenues;
- A change in the debt policy in favor of short-term bank loans;
- A decline in the averaged monthly wage to regional subsistence wage ratio below 350% for 2017–2020.
Komi Republic, 35012 (ISIN RU000A0JVKF9), maturity: June 23, 2021, issue volume: RUB 11 bln — A-(RU);
Komi Republic, 35013 (ISIN RU000A0JWZM1), maturity: November 16, 2022, issue volume: RUB 6.18 bln — A-(RU);
Komi Republic, 35014 (ISIN RU000A0JXUD9), maturity: June 25, 2024, issue volume: RUB 10 bln — A-(RU).
Rationale. ACRA is of the opinion that the above bonds issued by the Komi Republic are senior unsecured debt instruments, which credit ratings are equal to that of the Komi Republic.
The credit ratings were assigned to the Komi Republic and bonds (ISIN RU000A0JVKF9, RU000A0JWZM1, RU000A0JXUD9) issued by the Komi Republic 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 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 was also used.
The credit rating assigned to the Komi Republic and the credit ratings assigned to the government bonds (ISIN RU000A0JVKF9, RU000A0JWZM1, RU000A0JXUD9) issued by the Komi Republic were first published by ACRA on September 5, 2017 and March 5, 2018, respectively. The credit rating of the Komi Republic and its outlook, as well as the credit ratings assigned to the government bonds (ISIN RU000A0JVKF9, RU000A0JWZM1, RU000A0JXUD9) issued by the Komi Republic 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 the data provided by the Komi Republic, 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 Government of the Komi Republic participated in their assignment.
No material discrepancies between the provided data and the data officially disclosed by the Komi Republic in its financial reports have been discovered.
ACRA provided no additional services to the Government of the Komi Republic. No conflicts of interest were discovered in the course of credit rating process.