The credit rating of the Komi Republic (hereinafter, the Republic, or the Region) is based on the moderately high share of the budget’s internal revenues, moderate debt load, and medium liquidity of the budget. The rating is constrained by the budget’s dependence on the mining sector and expectations of an increase in debt.
The Republic is located in the North-Western Federal District. Part of its territory belongs to Russia’s Far North. About 820,000 people (0.6% of Russia’s total population) live in the Region. The Republic’s share in the total GRP of the Russian regions was 0.8% in 2018.
Key rating assessment factors
Moderate budget profile indicators. In 2020, the decline in the Republic’s tax and non-tax revenues (TNTR), which in ACRA believes amounted to 18%, was offset by transfers from the federal budget, which grew by more than threefold. Meanwhile, the Republic’s budget expenditures grew by 24% according to ACRA’s estimates, while the deficit for 2020 is expected at around 20% of TNTR. The law on the Republic’s 2021 budget foresees a deficit of around RUB 9.6 bln, which will be financed primarily by bond issues and bank loans.
In 2017–2021, the averaged1 share of internal revenues in the total revenues of the Region (excluding subventions) should equal 85%. The averaged share of capital expenditures in the above period should stand at around 12% of total expenses (excluding subventions). The averaged ratio of current operations to current revenues (according to ACRA’s methodology) in 2017–2021 should amount to 7%, while the averaged modified budget deficit to current income ratio should be negative at -4%. These indicators show that current revenues are sufficient to cover current expenses, and that the Region needs to resort to borrowing to finance its capital expenditures
1 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.
The debt load will continue to grow in 2021, but will remain moderate. The Region’s debt amounts to 42% of its current revenues at the start of 2021, and is made up of bonds (45%), budget loans (33%), and bank loans (22%). If the unfavorable situation in the hydrocarbon market continues, the ratio of debt to current revenues may increase to 60% by the end of 2021, which corresponds to a moderate debt load. The Republic is scheduled to repay 38% of its debt obligations in 2021, and 17% in 2022. Debt servicing expenses are not burdensome for the regional budget (the ratio of averaged interest expenses to total budget expenses excluding subventions should amount to 3% in 2017–2021). 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 possesses sufficient liquidity to meet its obligation on time. As of the beginning of 2021, the available balance on budget accounts taking into account undrawn open credit lines exceeds the average monthly expenses of the Region’s budget in 2020 by 1.4 times.
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 production of petroleum products sub-sector, the extractive sector generated more than 70% of the industrial output of the Republic in 2019. The GRP per capita is high (the Republic ranked 10th among Russia’s regions in 2018), while the Region’s monthly wage to subsistence wage ratio (for the working population) averaged for 2016–2019 amounted to 360%. Averaged unemployment totaled 7.2% in 2016–2019.
- TNTR growing by 3% in 2021 compared to 2020;
- Internal liquidity of the budget 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:
- Minimal growth of debt load in 2021;
- Sustainable growth of internal budget liquidity.
A negative rating action may be prompted by:
- Increase in current expenses of the Republic’s budget that is not accompanied an increase in current revenues;
- Debt exceeding 70% of current revenues;
- Change in the debt policy in favor of short-term bank loans.
- Averaged monthly wage to subsistence wage ratio falling below 350%.
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. In ACRA’s opinion, the bonds of the Komi Republic listed above are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of Komi Republic.
The credit ratings have been assigned to the Komi Republic and the 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 the Analytical Credit Rating Agency within the Scope of Its Rating Activities. The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments Under the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit rating of the Komi Republic and the credit ratings of the government securities (ISIN RU000A0JVKF9, RU000A0JWZM1, RU000A0JXUD9) issued by the Komi Republic were published by ACRA for the first time 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 of the government securities (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 statements 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 assignment.