The credit rating of the Kemerovo Region — Kuzbass (hereinafter, the Region) is based on the balanced operating indicators of the Region’s budget, low debt load with low refinancing risks, a significant amount of liquidity, and a high level of capital expenditures. The rating is constrained by the dependence of economic and budgetary indicators on the dominant industry in the Region (coal mining).

The Region is part of the Siberian Federal District and is home to 2.6 mln people (1.8% of Russia’s total population). According to the Region’s estimates, its gross regional product (GRP) amounted to RUB 1.9 tln in 2022.

key assessment factors

Balanced operating indicators of budget profile. The averaged1 ratio of the current account balance to current revenues will amount to 14% in 2019–2023, which indicates a moderately high level of operational efficiency. In 2021–2022, the volume of the current account balance grew considerably compared to 2020. This year, the balance is expected to be negative.

The averaged value of the share of capital expenditures in total expenditures in 2019–2023 will amount to around 23%, which, according to ACRA’s methodology, corresponds to a high level of flexibility of budget expenditures. More than two-thirds of capital expenditures are financed by the regional budget. Over the past five years, capital expenditures demonstrated a regular significant increase.

The share of tax and non-tax revenues (TNTR) in the Region’s revenues averaged over the specified period (excluding subventions) will be 80%.

The ratio of the modified budget deficit to current revenues averaged for 2019–2023 is expected to be 2%, which indicates that the Region needs to use the accumulated funds or borrow loans to finance some of its capital expenditures.

The growth of tax revenues in 2021 and 2022 allowed the Region to accumulate a significant reserve of liquidity. The past year's growth of TNTR amounted to 39%. Regardless a significant increase in budget expenditures, the Region showed a surplus in 2022.

A significant budget deficit is expected this year amid, first of all, a decline in corporate income tax revenues on the back of a decrease in prices for thermal coal after the surge in 2022 and the expected discount to world prices for coal exported from Russia to Asia-Pacific countries.

It is assumed that budget deficits will be covered with liquidity accumulated earlier.


Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.

Low debt load and low refinancing risks. In 2022 the Region received a RUB 21.3 bln loan for substitution of market debt and a RUB 1.5 bln loan for financial support of infrastructure projects. As of January 1, 2023, the Region has repaid bank loans, and its debt consisted of budget loans (82%), with the rest falling on bonds and other debt instruments. Following debt refinancing, the debt repayment schedule has become smoother: the Region will have to repay no more than 17% of its debt, and 7% annually in 2023 and 2024.

According to ACRA's expectations, by the end of 2023 the debt load will grow from 20% to 30% of current revenues due to lower current revenues. The absolute volume of debt will remain unchanged.

Interest expenses are not burdensome for the Region: averaged interest expenses for 2019–2023 will not exceed 1% of total budget expenditures (excluding subventions).

The ratio of debt to the Region’s GRP will be about 3% in 2023, which corresponds to a low total debt load according to ACRA’s methodology.

High budget liquidity. Since the start of 2022, the Region’s account balances multiply exceeded monthly budget expenditures. However, these funds are mostly expected to be spent.

The liquidity ratio in 2022 exceeded 400%, but by the end of 2023, the ratio will plunge to slightly more than 100% due to the need to cover budget deficits.

As of January 1 and April 1, 2023, the Region did not have any overdue accounts payable. The Region regularly places accumulated funds in bank deposits.

The economy’s concentration on the mining sector is high. The economy of the Region is based on coal mining and related industries. Historically, the largest taxpayers in the Region are coal and metal companies. The main contributor to tax revenues of the regional budget is the coal mining industry. According to ACRA’s estimates, the share of tax revenues from coal mining averaged for 2019–2022 was 42%.

The Region’s economy is characterized by comparatively low GRP per capita (averaged GRP per capita in 2018–2021 was 75% of the national average). The ratio of the averaged salary to the regional subsistence minimum in 2019–2022 exceeded 400%, which has a positive impact on the assessment of the Region’s economic profile. Unemployment rate averaged for 2019–2022 was 4.8%.

KEY ASSUMPTIONS

  • Financing the projected budget deficit using accumulated liquidity.

  • Pursuing the policy of long-term borrowings and avoidance of peak repayments.

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 positive rating action may be prompted by:

  • Maintaining a considerable volume of funds in the Region’s accounts;

  • Achieving a stable positive value of the modified budget deficit;

  • Reaching the ratio of debt to current expenditures consistently below 30%.

A negative rating action may be prompted by:

  • Share of short-term debt exceeding 20% of the absolute value of debt;

  • Significant decline of available liquidity.

ISSUE RATINGS

Kemerovo Region, 35002 (ISIN RU000A0ZYB40), maturity date: September 26, 2024, issue volume: RUB 9 bln — A(RU).

Rationale. In the Agency’s opinion, the bond listed above is a senior unsecured debt instrument, the credit rating of which corresponds to the credit rating of the Kemerovo Region — Kuzbass.

REGULATORY DISCLOSURE

The credit ratings of the Kemerovo Region — Kuzbass and the bond of the Kemerovo Region (ISIN RU000A0ZYB40) have been assigned 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 on the National Scale for the Russian Federation was also applied to assign the credit rating to the above issue.

The credit rating of the Kemerovo Region — Kuzbass and the credit rating of its bond (ISIN RU000A0ZYB40) were published by ACRA for the first time on August 29, 2017 and October 2, 2017, respectively. The credit rating of the Kemerovo Region — Kuzbass and its outlook, as well as the credit rating of its bond (ISIN RU000A0ZYB40), 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 Kemerovo Region — Kuzbass, 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 Kemerovo Region — Kuzbass 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 no additional services to the Government of the Kemerovo Region — Kuzbass. No conflicts of interest were identified in the course of credit rating assignment.

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