The credit rating of Saint Petersburg (hereinafter, the City) is based on the City’s well-developed economy, balanced budget structure, low debt load, and high budget liquidity.
Saint Petersburg is a city of federal importance and home to 3.8% of Russia’s population. According to data for 2021, the City’s gross regional product accounts for about 7.8% of the total GRP of Russia’s regions.
KEY ASSESSMENT FACTORS
Low debt load and minimal refinancing risks. According to ACRA’s estimates, the City’s debt amounted to less than 10% of its current revenues in 2022 and was made up of bonds due in 2023–2028 (89%) and budget loans due in 2024–2037 (11%).
ACRA does not expect the debt load to exceed 20% of current revenues in 2023, i.e. it will remain low. In H1 2023, the City obtained an infrastructure budget loan and as a result, debt had grown by 15% as of September 1, 2023 compared to the start of the year. The averaged1 debt to GRP ratio of the City will be below 2% in 2023.
Debt service costs are not burdensome for the City’s budget. Given the low debt load, the risk of debt refinancing in 2023 and 2024 is minimal.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
High budget liquidity. The City fulfills its expenditure obligations on time and regularly deposits temporarily free funds with banks. As of January 1, 2023, the City’s temporarily free budget funds were almost three times higher than average monthly budget expenditures in 2022, and as of August 1, 2023 they were almost four times higher than the volume of public debt as of the same date. The City does not need to borrow short-term loans from the Federal Treasury Department to cover cash gaps. The liquidity ratio, as per ACRA’s methodology, may amount to 140% in 2023.
Balanced budget structure and sufficient budget discipline. The City’s budget is highly self-sufficient — for 2020–2024, the averaged ratio of tax and non-tax revenues (TNTR) to internal revenues, excluding subventions, will amount to 97.5%. The averaged share of capital expenditures in the City’s total expenditures (excluding subventions) will amount to more than 25.6% for the aforementioned period. In 2020–2024, the averaged current account balance to current revenues ratio will exceed 20%, and the ratio of the averaged modified budget deficit to current revenues will amount to -0.1%. These indicators show that current revenues are sufficient to cover current expenditures, however, it may be necessary to raise debt or draw on accumulated liquidity to finance capital expenditures.
The City plans to execute its budget with a deficit of 14% of TNTR in 2023. The deficit will stem from a 9% decline in revenues and a 15% increase in spending. In particular, corporate income tax revenues are expected to fall by 21% and the growth in expenditures will be driven mainly by higher (+18%) current expenditures. The deficit is planned to be covered by borrowing and using part of accumulated liquidity.
As of seven months of the current year, corporate income tax revenues declined by 28% compared to their level last year, while property tax proceeds grew by 30%. Total revenues fell by 7% and expenditures grew by 30% (most of this growth was generated by spending on education, the national economy, and social policy). Nevertheless, the budget for seven months of 2023 was executed with a surplus.
The City’s highly developed economy provides for a diversified tax base. The City’s per-capita GRP is consistently higher than the national average by 1.5 times, and as a result of a significant increase in nominal GRP in 2021, this ratio (before averaging) exceeded 2. Tax revenues are highly diversified by sector — according to ACRA’s calculations, the averaged estimate of the maximum share of a single industry in the City’s tax revenues in 2019–2022 did not exceed 30%. Nevertheless, the Agency notes growth of the share of the trade sector in GRP and tax revenues. Unemployment remains consistently low and did not exceed 2% in 2019–2022. The average monthly wage was more than five times higher than the City’s subsistence minimum in the aforementioned period.
KEY ASSUMPTIONS
-
Budget execution in 2023 as outlined in the budget law;
-
Maintaining a conservative debt policy;
-
Maintaining high 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 negative rating action may be prompted by:
-
Debt load growing above 30% of the City’s current revenues;
-
Significant fall in available liquidity.
ISSUE RATINGS
Saint Petersburg, 35001 (ISIN RU000A0ZYHX8); maturity date: May 28, 2025, issue volume: RUB 30 bln — AAA(RU).
Saint Petersburg, 35002 (ISIN RU000A0ZYKJ1); maturity date: December 4, 2026, issue volume: RUB 25 bln — AAA(RU).
Saint Petersburg, 35003 (ISIN RU000A102A15); maturity date: April 13, 2027, issue volume: RUB 30 bln — AAA(RU).
Saint Petersburg, 35004 (ISIN RU000A102K88); maturity date: September 28, 2028, issue volume: RUB 30 bln — AAA(RU).
Rationale. In ACRA’s opinion, the bonds of Saint Petersburg are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of Saint Petersburg.
REGULATORY DISCLOSURE
The credit ratings have been assigned to Saint Petersburg and bond issues (ISIN RU000A0ZYHX8, RU000A0ZYKJ1, RU000A102A15, RU000A102K88) of Saint Petersburg 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 Saint Petersburg and the government securities (ISIN RU000A0ZYHX8, RU000A0ZYKJ1, RU000A102A15, RU000A102K88) of Saint Petersburg were published by ACRA for the first time on June 27, 2017, December 4, 2017, December 12, 2017, October 22, 2020, and December 17, 2020, respectively. The credit ratings of Saint Petersburg and bond issues (RU000A0ZYHX8, RU000A0ZYKJ1, RU000A102A15, RU000A102K88) of Saint Petersburg 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 Saint Petersburg, 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 Saint Petersburg 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 Saint Petersburg. No conflicts of interest were discovered in the course of credit rating assignment.
