The credit rating of the Samara Region (hereinafter, the Region) stems from the moderately low debt load, smooth repayment schedule, and stable and sufficiently highly liquid budget. The rating is constrained by economic indicators that are somewhat below the national average, and the likelihood of using a significant part of accumulated liquidity to finance the budget deficit.
The Region is located in the Volga Federal District. It borders four Russian regions and Kazakhstan. The Region has a population of 3.2 mln. Its largest cities are Samara, Tolyatti and Syzran, which together with other settlements form the Samara-Tolyatti Agglomeration, the third largest agglomeration in Russia in terms of population (2.7 mln).
According to the Region, its gross regional product (GRP) was RUB 2.32 tln in 2022. The largest companies in the Region are engaged in oil production and manufacturing automobiles, aerospace, chemical and petrochemical products, and foodstuffs. The Region has a rather well-developed transport infrastructure.
KEY ASSESSMENT FACTORS
Moderately low debt load with a balanced debt structure in terms of maturities. According to ACRA’s estimates, the ratio of the Region’s debt to current revenues may grow from 28% as of the start of 2023 to 44% by the end of the year due to possible new borrowings to finance the deficit stipulated by the budget law. The ratio of averaged1 debt to the Region’s GRP will amount to around 3.6%.
As of January 1, 2023, the Region’s debt was mainly budget loans (71%), while bonds accounted for the remaining part (29%). As of August 1, 2023, the volume and structure of debt had changed slightly due to the attraction of budget loans and partial amortization of a bond issue. The annual amount of repayment (refinancing) does not exceed 15% of the current debt. Averaged interest expenses in 2020–2024 will be about 1.4% of total budget expenditures excluding subventions, which corresponds to a low level of risk and indicates that these expenditures are not burdensome for the Region’s budget.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Sufficient budget liquidity. The Region regularly deposits cash in banks. As of January 1, 2023, the amount of deposits held with banks was more than two times higher than the average monthly budget expenditures for 2022. This arrangement allows the Region to earn additional funds and offset debt servicing costs. The liquidity ratio (calculated according to ACRA’s methodology) amounted to 117% in 2022 and may amount to about 49% in 2023. At the same time, over seven months of this year, balances in the Region’s accounts increased by 80% compared to the start of the year.
Moderately high degree of budget self-sufficiency and flexible budget expenditures. The averaged share of tax and non-tax revenues (TNTR) in the Region’s total revenues (excluding subventions) in 2020–2024 is expected to be 79%. As per ACRA’s methodology, the averaged ratio of the balance of current operations to current revenues for this period will be 7%, with the ratio of averaged modified budget deficit to averaged current revenues at -10.3%. These indicators demonstrate that current revenues can cover current expenditures and that there is a need to borrow funds or use account balances to finance capital expenditures. Averaged capital expenditures in 2020–2024 will amount to 25% of total budget expenditures (excluding subventions). However, since federal transfers cover a significant portion of expenditures, the Region is restricted in reallocating these funds to other purposes.
The tax revenue diversification by industry is high enough. The maximum share of a single industry or associated industries is less than 25% of budget revenues. The largest share of tax revenues is generated by the manufacturing sector (including the chemical industry — 10% in 2022), oil and gas production (7%), and wholesale trade (11%).
It is assumed that in 2023, the Region’s budget will be executed with a significant deficit, and to cover the deficit, the Region will have to borrow, and to a large extent, use accumulated liquidity. The Region does not disclosure the structure of its TNTR forecast, but on the whole it will decline by 4%, while total revenues will fall by 17%. At the same time, over seven months of the current year, the Region’s budget was executed with an RUB 18 bln surplus, and revenues were 70% achieved (including TNTR — 69%).
Diversified and industrially developed economy. In 2018–2021, the Region’s averaged GRP per capita was 81% of the national average. In 2022, the unemployment rate in the Region was 2.7%, while the average monthly salary exceeded the regional subsistence minimum (for the working-age population) by more than three times.
The Region’s economy is based on the manufacturing and oil production sectors (21.5% and 20.6% of GRP in 2021, respectively). The Region’s manufacturing sector is dominated by vehicle manufacturing and chemicals. In 2022, companies in the Region manufactured 42% of all cars made in Russia, as well as 15% of nitrogen fertilizers and a significant share of other products manufactured by the chemical and petrochemical industries. Structural transformation and/or migration of some enterprises allowed the Region to adapt to the changed economic conditions.
KEY ASSUMPTIONS
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Maintaining a conservative debt policy;
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Maintaining sufficient budget liquidity.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the credit rating will highly likely remain unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Reducing the Region’s lag behind national average economic indicators;
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Maintaining the debt to current revenues ratio below 30% while maintaining liquidity.
A negative rating action may be prompted by:
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Growth in current budget expenditures that is not supported by a corresponding increase in budget revenues;
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Substantial decrease in regional budget liquidity;
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Debt load exceeding 55% of current revenues.
ISSUE RATINGS
Samara Region, 35013 (ISIN RU000A0JXT41); maturity date: May 31, 2024, issue volume: RUB 10 bln — AA(RU).
Samara Region, 35012 (ISIN RU000A0JWM56); maturity date: June 21, 2024, issue volume: RUB 10 bln — AA(RU).
Samara Region, 35014 (ISIN RU000A0ZZ9P8); maturity date: June 4, 2026, issue volume: RUB 8 bln — AA(RU).
Samara Region, 35015 (ISIN RU000A1020L5); maturity date: August 4, 2026, issue volume: RUB 5 bln — AA(RU).
Rationale. In ACRA’s opinion, the issues listed above are senior unsecured debt instruments, the credit ratings of which are equal to the credit rating of the Samara Region.
REGULATORY DISCLOSURE
The credit ratings have been assigned to the Samara Region and the bond issues (ISIN RU000A0JXT41, RU000A0JWM56, RU000A0ZZ9P8, RU000A1020L5) of the Samara Region 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 Samara Region and the bond issues (ISIN RU000A0JXT41, RU000A0JWM56, RU000A0ZZ9P8, RU000A1020L5) of the Samara Region were published by ACRA for the first time on December 28, 2016, June 5, 2017, July 7, 2017, June 6, 2018, and August 3, 2020, respectively. The credit rating of the Samara Region and its outlook, as well as the credit ratings of the bond issues (ISIN RU000A0JXT41, RU000A0JWM56, RU000A0ZZ9P8, RU000A1020L5) of the Samara Region, 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 Government of the Samara Region, 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 Samara Region 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 Samara Region. No conflicts of interest were discovered in the course of credit rating assignment.
