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 refinancing risks, significant amount of liquidity that is planned to cover this year’s budget deficit, and high level of capital expenditures. The rating is constrained by the dependence of economic and budget indicators on the Region’s dominant industry (coal mining), as well as the potential growth of the debt load in the planned period.
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, the gross regional product (GRP) amounted to RUB 2 tln in 2023.
key assessment factors
Balanced operating indicators of budget profile. The averaged1 ratio of the current account balance to current revenues will amount to 13% in 2020–2024, which indicates a moderately high level of operational efficiency. In 2021–2022, the volume of the current account balance grew considerably compared to 2020. In the past year, the balance declined, and it is expected to be negative this year.
The averaged value of the share of capital expenditures in total expenditures in 2020–2024 will amount to around 25%, which, according to ACRA’s methodology, corresponds to the high 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. Therefore, the qualitative assessment of flexibility of budget expenditures is moderately high.
The share of tax and non-tax revenues (TNTR) in the Region’s revenues averaged over the specified period (excluding subventions) will be 83%.
The ratio of the modified budget deficit to current revenues averaged for 2020–2024 is expected to be 3.7%, which indicates that the Region’s funds are high enough to finance expenditures, including capital ones.
The growth of tax revenues in 2021 and 2022 allowed the Region to accumulate a significant reserve of liquidity. The past year's budget deficit was covered mostly with budget loans. A significant budget deficit is expected this year due to, first of all, a decline in corporate income tax revenues. The projected deficit will be covered using the accumulated liquidity.
The Region’s revenue structure is volatile due to the observed dependence of revenues on coal mining. The share of corporate income tax revenues in TNTR varied from 29% to 56% in the period from 2016 to 2023. This is a major obstacle in budget planning.
ACRA is not aware of any violations of budget laws able of affecting the credit quality. The Region grants tax deductions to companies operating in its territory. Inefficient deductions are being cancelled. Municipalities receive additional funds out of personal income tax revenues instead of transfers, which drives their economic development. The budget profile is viewed as moderately strong.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Low debt refinancing risks and the potential growth of debt. As of January 1, 2024, the Region’s debt consisted of budget loans (89%), with the rest falling on bonds and other debt instruments. The Region was to repay no more than 23% of its debt obligations annually. By April 1, 2024, the most portion of budget loans falling due this year was repaid.
In 2023, the debt load on the Region’s budget remained almost unchanged, and currently it amounts to 30%. By the end of this year, this indicator is expected to stay at about the same level (a boundary value adjustment is applied in view of the debt load increase expected in 2025).
Interest expenses are not burdensome for the Region: averaged interest expenses for 2020–2024 will not exceed 1% of total budget expenditures (excluding subventions).
The ratio of debt to the Region’s GRP was about 3.3% by the end of 2023, which corresponds to a low total debt load according to ACRA’s methodology. This year, the ratio is not expected to change much.
The Region’s debt profile is assessed as strong. In 2023, some of the budget loans were waived, and this process is expected to continue this year. There were no overdue accounts payable by the regional budget as of January 1, 2024 and April 1, 2024; the weighted average debt repayment period exceeded 3.5 years at the beginning of this year. The current account balance has been mostly positive in recent years, but it largely depends on the market situation. The Region’s credit history is positive, the debt of municipalities is significant but it is controlled by the Region and is decreasing in relative terms. Almost the entire volume of accumulated liquidity is planned to be spent this year, which creates risks of a surge in the debt load in case of an unforeseen decrease in budget revenues in the planned period.
Currently high budget liquidity. Since the start of 2022, the Region’s account balances multiply exceeded monthly budget expenditures. However, most of these funds are expected to be spent.
The liquidity ratio in 2023 exceeded 300%, but by the end of 2023, the ratio may plunge to about 90% due to the need to cover budget deficits.
The liquidity profile is moderately strong. The Region regularly places accumulated funds on bank deposits and avoids purchases of credit lines in the absence of necessity. At the same time, as account balances are spent, the Region will have to borrow in 2025. This year, the Region has not signed an agreement for the provision of a budget loan to replenish the balance of funds on the single budget account. In 2023, such an agreement was signed and a RUB 12.7 bln loan was borrowed for advanced financing of expenditure obligations.
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 2020–2023 is slightly less than 40% (a boundary value adjustment is applied).
The Region’s economy is characterized by low GRP per capita (averaged GRP per capita for 2019–2022 is slightly over 80% of the national average). The ratio of the averaged salary to the regional subsistence minimum in 2020–2023 exceeds 400%, which has a positive impact on the assessment of the Region’s economic profile. Unemployment rate averaged for 2020–2023 is 4.1%.
KEY ASSUMPTIONS
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Using the most portion of accumulated liquidity this year.
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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:
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Maintaining a considerable volume of funds in the Region’s accounts concurrently with a decline of the ratio of debt to current expenditures to much lower than 30%;
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The GRP per capita sustainably growing above the national average.
A negative rating action may be prompted by:
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Share of short-term debt exceeding 20% of the absolute debt;
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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.
