The “Rating under revision: positive” status of the credit rating assigned to the Volgograd Region (the Region) reflects ACRA’s opinion about possible significant improvement in the Region’s debt load profile caused by the following factors:
- The expected restructuring of budget loans (for RUB 16.856 billion) maturing in 2018–2024;
- The RUB 4.53 billion budget loan expected to be provided in 4Q2017 to replace market debt.
The BBB-(RU) credit rating of the Region is determined by significant improvement in fiscal discipline and debt load in 2017 due to lower expenditures on education and social policy, as set forth in the Law on state budget and in respective government programs, as well as relatively high unemployment and low per capita income.
ACRA notes that, in 2017, the Region was to prepay a substantial portion of budget loans. Therefore, total repayments under all instruments were expected at RUB 30.55 billion (57.2% of the total debt as of January 01, 2017). In the summer of 2017, the Region planned to receive a new budget loan of RUB 10-15 billion to replace an early repayable budget loan. In October 2017, the Region was granted a budget loan of RUB 15.75 billion to be repaid by 2022.
The restructuring of budget loans expected in 2017 includes the Region's debt of RUB 16.856 billion under budget loans maturing in 2018–2024. In addition, in 4Q2017, the Region will have the opportunity to receive an additional budget loan amounting to RUB 4.53 billion to replace the market debt. According to ACRA estimates, in 2017, the actual amount of Region’s repayments under budget loans will be about RUB 1 billion instead of the RUB 21.3 billion (including early repayments) planned at the beginning of the year.
According to ACRA estimates, following the restructuring and replacement of market debt, the market debt share in the Region’s total debt will not change by the end of 2017 (53% of the total debt), which will reduce debt service costs and repayments planned for 2018, from RUB 13.46 billion (according to the extract from the debt book as of January 01, 2017) to RUB 5.17 billion. Thus, the pressure on the operating balance will be significantly lower and the debt refinancing risks will decrease.
Key assumptions
- The 2017 budget to be performed with the deficit of not more than 2% of tax and non-tax revenues;
- The operating balance to remain unchanged.
Potential outlook or rating change factors
Removal of the rating status and a positive rating action may be prompted by:
- Conclusion of an agreement for additional budget loan of over RUB 4 billion to replace the market debt in 2017;
- Conclusion of an agreement for restructuring of budget loans of RUB 16.8 billion;
- The 2017 budget performance with the deficit of less than 1%.
Removal of the rating status and affirmation of the current credit rating may be prompted by:
- A failure to obtain an additional budget loan to replace the market debt in 2017.
Regulatory disclosure
The credit rating and rating status have 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 of the Volgograd Region was first published on June 26, 2017. The credit rating is expected to be revised within 90 days following the rating action date (November 22, 2017).
The credit rating and rating status have been assigned based on the data provided by the Volgograd Region, information from publicly available sources (the RF 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 Volgograd Region participated in its assignment.
No material discrepancies between the provided data and the data officially disclosed by the Volgograd Region in its financial report have been discovered.
ACRA provided no additional services to the Volgograd Region. No conflicts of interest were discovered in the course of credit rating assignment.
