The credit rating was assigned to the Ryazan Region (hereinafter, the Region) based on moderate debt load of the operating balance and effect from planned restructuring, moderate operating balance as well as high liquidity of the budget.
The Ryazan Region is part of the Central Federal District. 48% of the Region’s population live in its administrative center, the city of Ryazan. The Region borders Vladimir, Nizhny Novgorod, Penza, Tambov, Lipetsk, Moscow, and Tula Regions and the Republic of Mordovia. The Region’s GRP is close to 0.5% of the total GRP of Russian regions. Around 0.8% of country’s population live in the Ryazan Region.
Key rating assessment factors
A diversified economy with relatively low unemployment and per capita income below national average level. The core of the Region’s economy is manufacturing industry (crude oil refining, military machinery, food processing, and construction materials production). High industry diversification of the economy has a positive effect on the diversification of the Region’s tax revenues. Tax revenue structure by revenue type is stable. Average growth rates of the real GRP of the Region in the last six years exceeded the aggregate GRP growth rates of all Russian regions. However, in 2014-2015, the Region was among 46 regions that faced recession due to which its GRP growth was slower than the national average figures. Migration inflow does not compensate for natural population decline resulting in continuous depopulation of the Region.
A well-balanced budget with a sufficient share of own revenues and medium level of mandatory spending. The Region’s budget has a sufficient share of tax and non-tax revenues (78% on average), which determines broad options of the Region in managing its own revenue base. Measures taken by the regional government to encourage investment activities may translate into increase in taxable activities in the long term. The share of mandatory spending in the budget is medium leaving many options available for budget maneuvering. The Region maintains sufficient level of own capital expenditures (9%-10% of total spending). By virtue of a relatively flexible expense side of the budget, the Region’s operating balance is moderate (16%-23% of regular revenues). According to stress test results performed by ACRA, the Region’s credit quality is moderately sensitive to fluctuations in own revenues. The current credit quality level is resistant to a negative scenario where tax and non-tax revenues decline 9%-10% vs 2016 figures.
Moderate debt load of the Region’s budget and high share of fiscal loans in the debt portfolio. As the share of fiscal loans in the Region’s debt portfolio is very significant (over 50%), the effect from restructuring of fiscal loans to be performed according to instruction from the President in September will be very noticeable in the debt load indicators. The average repayment period may increase from the current 1.9 years to 3.9 years by early 2018. At the same time, the effective interest rate for the portfolio may fall from 4.2% as at early 2017 to 2.8%-3%. Such comfortable repayment schedule (operating balance less interest expenses to cover current-month debt repayment amount by more than 300% starting in 2018) and debt servicing amount (less than 10% of the operating balance) correspond to a minimum refinancing risk level. At the same time, the total debt amount to operating balance ratio remaining above 200% corresponds to a medium risk level.
High liquidity of the budget. Monthly needs of the Region in funds may be from time to time covered by account balances as at month start only. No funds are placed on deposits with banks. From time to time, the Region raises funds from the Federal Treasury Department to finance planned cash gaps. The limits in unused facilities from banks amounted to RUB 6 bln as at October 1, 2017, which enables the Region to temporarily repay loans from the Federal Treasury Department by using these funds only. The Region has enough freedom with respect to external liquidity sources to manage account balances and undertake expenditures in both planned and unexpected cash gaps.
Key assumptions
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Manufacturing enterprises preserve their high share in the GRP;
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Fiscal loan restructuring program is implemented in 2018 according to the given parameters;
- Decrease in average interest rate with respect to the Region’s market debt;
- Maintaning the share of the budget’s mandatory spending below 80%.
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:
- Household income and real GRP growth outpacing the national averages;
- Increase of own liquidity level and less frequent planned cash gaps;
- A substantial decline of debt to operating balance ratio.
A negative rating action may be prompted by:
- A substantial reduction of repayment dates for debt obligations;
- Debt load growth (debt to operating balance) above 3x;
- Decrease in availability of external liquidity sources.
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 Ryazan Region for the first time. The credit rating and credit rating outlook are expected to be revised within 182 days following the rating action (October 12, 2017).
The credit rating was assigned based on the data provided by the Ryazan Region, 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 Ryazan Region participated in its assignment.
No material discrepancies between the data provided and the data officially disclosed by the Ryazan Region in its financial report have been discovered.
ACRA provided no additional services to the Ryazan Region. No conflicts of interest were discovered in the course of credit rating assignment.
