The credit rating of the Yamalo-Nenets Autonomous Okrug (hereinafter, YaNAO, or the Region) is based on YaNAO's minimal debt load, high self-sufficiency, sustainability and liquidity of the budget, and high performance indicators of the regional economy.
A standalone administrative entity of the Russian Federation, YaNAO is also part of the Tyumen Region[1] and is located in the Ural Federal District. The Region is a Far North territory with more than half of its area lying beyond the Arctic Circle. More than 85% of Russian gas is extracted in YaNAO. According to the Region’s estimates, its nominal GRP amounted to RUB 5.8 tln in 2022. The Region’s population accounts for about 0.4% of the Russian population.
1 A certain share of profit tax revenues collected in the Region goes to the budget of the Tyumen Region (set to 29.5% by the agreement between the Tyumen Region and the Yamalo-Nenets Autonomous Okrug).
KEY ASSESSMENT FACTORS
High budget self-sufficiency. YaNAO's revenues depend on the conditions in the world markets, which is confirmed by the dynamics of revenues over the past three years. The current version of the regional budget law provides for a 17% decrease in tax and non-tax revenues (TNTR) in 2023 relative to the actual revenues of the previous year (largely due to a decrease in corporate income tax revenues). In 2022, corporate income tax revenues grew by 31%, and in 2021 — by 85%. This volatility is partially compensated by the high share of property tax revenues; however, it is not possible to offset completely the effects of external markets.
In 2022, the Region's budget was executed with a significant surplus, so that its reserves have grown. The budget deficit planned for 2023 (due to lower revenues and higher expenditures, mostly capital) is expected to be covered with the accumulated funds.
The share of own revenues in the Region's budget is high, the averaged2 share of the Region's TNTR in its total revenues, excluding subventions, for the period from 2019 to 2023 will be 92%. In different years, the structure of TNTR has been dominated by property tax and corporate income tax.
The regional budget’s operating efficiency is high, as the average ratio of the current operating balance to current revenues is sustainably positive and will amount to 24% for 2019–2023. The ratio of averaged modified budget deficit to averaged current revenues for the above period will be 2%. All current expenditures are covered with budget revenues, although to cover its capital expenditures, the Region will have to use funds accumulated in its accounts.
The regional budget is highly flexible due to the high averaged share of capital expenditures in total expenditures (29% over 2019–2023). The average share of capital expenditures financed by YaNAO on its own exceeds 80%.
2 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Minimal debt load. As of the end of 2022, the ratio of debt to current revenues was less than 1%. The Region expects that the debt load will remain minimal by the end of 2023.
As of early 2023, the share of short-term debt was close to 100%, but this value is unrepresentative since the Region’s debt load is low.
Public debt servicing costs are not burdensome for the Region's budget: the ratio of averaged interest expenses in 2019–2023 to averaged total budget expenditures excluding subventions will amount to 0.2%. Interest income is higher than interest expenses. The ratio of the Region's GRP to debt is insignificant.
In 2022, YaNAO has issued state guarantees for RUB 2.8 bln in loans granted for infrastructure projects of DOM.RF (ACRA rating: AAA(RU), outlook Stable). As of the beginning of 2023, the amount due on these loans was RUB 24 mln.
High budget liquidity. YaNAO holds a significant amount of funds in budget accounts and deposits. As of January 1, 2023, these funds were multiply higher than the total debt and over three times higher than the average monthly budget expenditures in 2022. The Region regularly benefits from its right to place funds in deposits. The Region's liquidity ratio (as per ACRA's methodology) will achieve the highest score this year.
Due to its significant liquidity reserves, the YaNAO neither participates in liquidity auctions nor borrows to cover cash gaps.
The Region is a contributor to the federal budget, accounting for more than 85% of Russia’s natural gas output. The Region’s economic profile assessment is determined by the high GRP per capita: in 2018–2021, the averaged GRP per capita was 8.8 times higher than the averaged value for the national economy.
In 2019–2022, the ratio of the averaged wage to the averaged regional subsistence minimum amounted to 6.2x, and the unemployment rate estimated as per the ILO’s methodology was lower than 3% in the past four years.
The Region’s economy is centered on the extraction and sale of hydrocarbons, which generates about a half of its tax revenues.
The Region is one of the core contributors to the federal budget. For 2021, 85% of taxes and charges collected in the Region was transferred to the federal budget, with just 15% remaining in the consolidated budget of the Region. In the same period, the Region’s contribution to the federal budget from mineral extraction tax amounted to 17% (second among Russian regions).
KEY ASSUMPTIONS
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Maintaining high socioeconomic indicators of the Region.
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TNTR declining in 2023 as set forth in the regional budget law.
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Use of funds held in budget accounts to cover budget deficits.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A negative rating action may be prompted by:
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Level of liquidity consistently declining to the volume of monthly expenditures;
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Current revenues declining significantly, with expenditures standing still;
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A significant change in inter-budgetary relations in Russia.
ISSUE RATINGS
YaNAO, 35004 (ISIN RU000A0ZYM47), maturity date: December 25, 2024, issue volume: RUB 5.5 bln — ААА(RU).
YaNAO, 35002 (ISIN RU000A0JX0Z8), maturity date: December 6, 2023, issue volume: RUB 20 bln — ААА(RU).
Rationale. In ACRA’s opinion, the bonds issued by the Yamalo-Nenets Autonomous Okrug are senior unsecured debt instruments, and their credit ratings are equal to the rating assigned to the Yamalo-Nenets Autonomous Okrug.
REGULATORY DISCLOSURE
The credit ratings have been assigned to the Yamalo-Nenets Autonomous Okrug and the bonds issued by the Yamalo-Nenets Autonomous Okrug (ISIN RU000A0ZYM47, RU000A0JX0Z8) under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Regions and Municipal Entities 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 Financial Instruments under the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit ratings of the Yamalo-Nenets Autonomous Okrug and the government securities (ISIN RU000A0ZYM47, RU000A0JX0Z8) issued by the Yamalo-Nenets Autonomous Okrug were published by ACRA for the first time on June 27, 2018. The credit rating of the Yamalo-Nenets Autonomous Okrug and its outlook and the credit ratings of its bond issues (ISIN RU000A0ZYM47, RU000A0JX0Z8) are expected to be revised within 182 days following the publication date of this press release as per the Calendar of sovereign credit rating revisions and publications.
The credit ratings were assigned based on data provided by the Yamalo-Nenets Autonomous Okrug, information from publicly available sources (the Ministry of Finance, the Federal State Statistics Service, and the Federal Tax Service), and ACRA’s own databases. The credit ratings are solicited, and the Government of the Yamalo-Nenets Autonomous Okrug participated in their assignment.
In assigning the credit ratings, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided additional services to the Government of the Yamalo-Nenets Autonomous Okrug. No conflicts of interest were identified in the course of credit rating assignment.
