The credit rating was assigned to the Krasnoyarsk Krai (hereinafter, the Krai, or the Region) based on highly developed regional economy, high self-sufficiency of the budget’s revenue side, operating balance growth and moderate share of the development budget (in percentage of spending).
The Krasnoyarsk Krai is part of the Siberian Federal District and borders eight regions of Russia. The Region’s population is 2.8 mln people (1.9% of Russia’s population, ranking 14th). In 2015, the Krai’s GRP equaled RUB 1.6 trillion (2.5% of the total GRP of Russian regions, ranking 9th). Metallurgical production and extraction of minerals are the core of the Regions’ economy, generating 23% and 17% of GRP respectively (2016 data).
Key rating assessment factors
A developed regional economy, with its core represented by aluminum, nickel, gold, and platinum group metals production. Although mining operations have a substantial share in GRP (17%), the product range of the Krai’s metallurgical industry (23% of GRP) is diversified and has a high added value, which has a positive effect on the financial results of companies of that industry operating in the Region. GRP dynamics is susceptible to price fluctuations in the global markets making it more procyclical as compared to the national average.
Low flexibility of the budget’s spending side with stable capital expenditures. In 2014-2017, the Krai’s operating balance increased from 7.4% to 13.6% of regular revenues, which yet represents a low level of budget flexibility. In 2017, the operating balance will reach 18% increasing the capacity of the budget’s revenue side to absorb adverse economic shocks. The share of capital expenditures in the Region’s budget is also stable and on average equals 15% of total spending, which is assessed by ACRA as moderate.
Growth of operating balance pushed down the debt load from critical levels. The debt load of the Krai (direct debt to operating balance ratio) decreased from 6.7x in 2014 to 4.3x in 2016, and, according to ACRA estimates, it will be as low as 3.7x by year-end 2017, which is assessed by ACRA as high risk. The need to repay 20% of the debt portfolio in 2017-2019 on average represents no significant refinancing risk. ACRA notes a significant improvement of debt servicing expenses to operating balance ratio from 45% to 21.7% in 2014-2017.
Low level of the budget’s own liquidity due to seasonality of spending and volatility of proceeds. The Krai’s government has regular needs in short-term financing as carrying cargo to the northern territories of the Krai has to be financed, and corporate income tax proceeds are unevenly distributed throughout the year. Liqudity resources are replenished by using funds from the Federal Treasury Department.
Key assumptions
- Regional economy growth rates to exceed the national average GRP growth.
- In 2018 and 2019, investments to GRP ratio to be at least 20%;
- The operating balance to reach at least 18% in 2018;
- The budget’s debt load to continue decreasing by virtue of operating balance growth and potential restructuring of fiscal loans.
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:
- GRP growth driven by development of new mineral deposits in the Krai;
- Increase of the Krai’s tax base while maintaining control over budget spending;
- Extention of the debt structure.
A negative rating action may be prompted by:
- Lower GRP growth resulting from an adverse cyclical influence of the market environment on key industries of the regional economy;
- Decline of the operating balance below 13%;
- Debt load (debt to operating balance) growth above 4x.
Issue ratings
None.
Rating history
None.
Regulatory disclosure
The credit rating has been assigned 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 credit rating has been assigned to the Krasnoyarsk Krai for the first time. The credit rating and credit rating outlook are expected to be revised within 182 days following the rating action (October 6, 2017).
The credit rating was assigned based on the data provided by the Krasnoyarsk Krai, 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 rating is solicited, and the Krasnoyarsk Krai participated in its assignment.
No material discrepancies between the data provided and the data officially disclosed by the Krasnoyarsk Krai in its financial report have been discovered.
ACRA provided no additional services to the Krasnoyarsk Krai. No conflicts of interest were discovered in the course of credit rating assignment.
