The credit rating of the Krasnoyarsk Krai (hereinafter, the Region) has been upgraded due to the economy’s concentration on the metals sector declining, liquidity growing last year, as well as declining risks of refinancing debt liabilities due to changes to the structure of the debt portfolio.
The Region’s credit rating is based on its low debt load, insignificant refinancing risks, positive operational efficiency of the budget, high flexibility of budget expenditures and moderately high tax and non-tax revenues (TNTR) in the total volume of revenues (excluding subventions). The rating is also supported by high economic development indicators and, consequently, the strong economic profile of the Region. The rating is constrained by the budget’s considerable need to use additional sources of financing in view of an expected budget deficit this year.
The Region is part of the Siberian Federal District and has a population of around 2.8 mln. Its largest cities are Krasnoyarsk, Norilsk, and Achinsk. The Region is rich in metal ores and fuel and energy resources. According to the Region, its gross regional product (GRP) amounted to RUB 3.5 tln in 2023.
KEY ASSESSMENT FACTORS
Moderately high operational efficiency of the budget and a significant need to use additional funds. According to ACRA’s projections, the averaged1 ratio of the current account balance to current revenues will be 15% for 2020–2024, while the current account balance was positive in 2023. This year the Agency also expects this indicator to be positive. This situation indicates that current revenues are sufficient to finance all current expenditures and a significant share of capital expenditures.
The Region’s budget is characterized by high flexibility of budget expenditures. The averaged ratio of capital expenditures in total budget expenditures (excluding subventions) will be around 19% for 2020–2024. Around two thirds of capital expenditures are covered by the Region’s internal revenues. The averaged share of TNTR in the Region’s revenues (excluding subventions) for the same period will be around 89% according to ACRA’s projections.
The averaged ratio of the modified budget deficit to current revenues will be around -1% for 2020–2024, which corresponds to a moderate need to use additional financing sources. However, the modified budget deficit indicator may be heavily negative this year, reaching the equivalent of a fifth of the Region’s current revenues, which is largely related to the Region’s plans to finish the year with a significant budget deficit. Due to this, the budget’s need to use additional sources of financing is determined as significant. Nevertheless, the Agency applied a positive adjustment to the averaged ratio of the modified budget deficit to current revenues for 2020–2024 in view of the large volume of funds in the Region’s accounts and the low debt load expected in 2024.
The Region’s budget profile is assessed as moderately strong. ACRA takes into account periodic significant deviations of actual regional budget revenues from targets due to the strong dependence of tax revenues on sectors of the economy characterized by high volatility. No violations of budget law by the Region were identified. The Region transfers part of corporate income tax revenues to lower budgets. The amount of lost funds in connection with the provision of benefits, in the Agency’s opinion, is not significant for the Region’s budget. According to the Region, tax expenditures for 2022 amounted to around 3% of TNTR; this figure remained at a similar level in 2023.
Last year, the revenue side of the Region’s budget increased by 15% vs. 2022, while TNTR increased by 22% year-on-year, which was mainly due to corporate income tax revenues and personal income tax revenues increasing by 39% and 13%, respectively. More than 2% of TNTR was generated by income from the placement of temporarily free budget funds, as the Region places free liquidity in deposit accounts. Transfers decreased by 25% last year, while there was a decrease in both current (-21%) and capital (-34%) transfers. The expenditure side of the Region’s budget grew by 8% in 2023, including a similar increase in current expenditures, while capital expenditures increased by 11%. The budget surplus at the end of last year amounted to 5% of TNTR, which allowed the Region to increase the volume of account balances.
According to information updated as of May 1, 2024, the Region’s revenues are expected to decline by 11% this year compared to 2023, coupled with a similar decline in TNTR. TNTR will fall due to smaller corporate income tax revenues, which may decline by 21%. The volume of transfers may also fall this year. This indicator is expected to decline by around 7% compared to 2023, while current transfers may shrink by 16% and capital transfers may grow by 17%. Budget expenditures will exceed RUB 450 bln in 2024, an 11% increase vs. 2023. Growth of total expenditures will mainly be driven by a 40% increase in the volume of capital expenditures. The deficit at the end of this year is expected to be around 21% of TNTR. The Region plans to finance more than 80% of the deficit using accumulated funds. The remainder will be covered using budget loans.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Funds in accounts increased considerably last year. At the end of 2023, this indicator had grown by 37% compared to the end of 2022, mainly due to the budget surplus last year. In addition, liquidity was partially increased using the funds of autonomous and budgetary organizations, as well as at the expense of budget loans received to finance infrastructure projects, which will be subsequently used to cover capital expenditures. In ACRA’s opinion, accumulated liquidity should be sufficient to cover the budget deficit expected by the end of 2024, as well as the planned debt repayments this year.
Since the start of 2023, balances in the Region’s accounts have covered monthly budget expenditures by more than three times on average. ACRA expects the liquidity ratio of the Region’s budget to be 115% for 2024.
The quality assessment of budget liquidity corresponds to a strong profile. Thanks to its significant volume of accumulated funds, the Region does not need credit instruments. Nevertheless, an agreement on obtaining a short-term loan from the Federal Treasury Department (FTD) to replenish funds has been signed this year. Last year, the Region raised a small volume of funds from the FTD for advance financing of expenditures. Debt refinancing risks are assessed as insignificant due to the non-commercial nature of most of the debt. According to the Region, the Region did not have any overdue payables as of January 1, 2024 and May 1, 2024.
Low debt load and insignificant liability refinancing risks. As of the end of 2023, the Region’s debt had increased by less than 1% year-on-year and amounted to RUB 51.0 bln. At the same time, the structure of the debt portfolio had changed more significantly. Due to the planned repayment of part of its bonds and the raising of budget loans to finance the Region’s infrastructure, the share of budget loans as of the start of this year had increased from 43% to 71%, while the share of bonds, on the contrary, had declined from 57% to 29%. The Region’s insignificant debt as of January 1, 2024 was formed by its other debt liabilities. The debt repayment schedule at the beginning of the year provided for the largest amount of repayment in 2024, when the Region needs to repay 27% of debt obligations, mainly formed by bonds. Despite this, ACRA views the risks of debt refinancing as insignificant due to the Region’s low debt load and the presence of a substantial volume of free liquidity. The Region will have to repay 14% of its debt in 2025.
As of May 1, 2024, the Region’s debt and its debt repayment schedule were largely unchanged. Since the start of this year, all the budget loans provided for advance financing of expenditures (around RUB 27 mln) have been repaid; they were insignificant compared to the Region’s total debt.
The Region’s ratio of debt to current revenues amounted to 13% in 2023, which corresponds to a low debt load. This indicator will increase to 19% by the end of this year, mainly due to the Region obtaining large volumes of budget loans.
Interest expenditures are not burdensome for the Region, as interest expenditures averaged for 2020–2024 stand at around 1% of total budget expenditures (excluding subventions). The ratio of the Region’s debt to projected GRP for 2024 will not exceed 2%.
The Region’s debt profile is assessed as strong. Debt is approximately three quarters made up of budget loans, with a weighted average repayment period of much more than 3.5 years. In 2024, the Region only expects to raise non-commercial debt. The operational efficiency of the Region’s budget is stably positive, which indicates that it is not necessary to finance current expenditures using additional funds. The debt load of municipal entities is very low — the ratio of their debt to TNTR was 9% in 2023. The financial debt of public sector enterprises was RUB 13.0 bln in 2023. The expected volume of budget expenditures under concession agreements is insignificant in 2024.
Highly developed economy. The Region’s economy is based on the extraction and processing of minerals. At the same time, over the past three years there has been a significant decline in the concentration of tax proceeds on the metal extraction and processing sectors. According to the Agency’s calculations, in separate years around half of the regional budget’s tax proceeds have come from the metals sectors. However, in 2023 these sectors accounted for just over a quarter of tax revenues. The averaged share of tax revenues for 2020–2023 from these sectors accounted for 34%. In addition, tax proceeds from the extraction of fuel and energy minerals are actively growing in the Region —this indicator exceeded 20% in 2023, while the averaged value for 2020–2023 approached 19%. The share of companies that are part of the Region’s public sector is low. The averaged share of tax revenues for the aforementioned period is just above 10%.
The largest companies operating in the Region in terms of contributed tax revenues are MMC Norilsk Nickel PJSC, Polyus Krasnoyarsk JSC, RUSAL Krasnoyarsk JSC, Vankorneft JSC, Tagulskoe LLC, etc.
The Region’s GRP per capita averaged for 2019–2022 stood at 128% of the national average. In accordance with the Region’s forecasts for the volume of GRP for 2023 and the Agency’s expectations, the averaged figure next year will not fall below 120%. The ratio of averaged wages to the regional subsistence minimum exceeded 350% in 2020−2023. In 2023, unemployment in the Region declined to 2%. The averaged unemployment rate calculated according to the ILO’s methodology was around 3%.
KEY ASSUMPTIONS
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Using a large part of accumulated liquidity to finance the budget deficit expected at the end of the year;
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Raising non-commercial debt only.
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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Sustainable growth of the share of TNTR in total revenues, excluding subventions;
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Maintaining substantial account balances as of the end of the year.
A negative rating action may be prompted by:
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Ratio of debt to current revenues exceeding 30% due to raising short-term commercial debt;
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Significant decline in the budget’s operational efficiency;
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Significant increase in the budget’s need to use accumulated liquidity due to the higher volume of the projected budget deficit.
ISSUE RATINGS
Krasnoyarsk Krai, 34013 (ISIN RU000A0ZYCM2), maturity date: October 3, 2024, issue volume:
RUB 10.0 bln — AА+(RU).
Krasnoyarsk Krai, 35014 (ISIN RU000A0ZYFB8), maturity date: October 31, 2024, issue volume:
RUB 7.8 bln — AА+(RU).
Krasnoyarsk Krai, 35015 (ISIN RU000A0ZZC48), maturity date: June 26, 2025, issue volume:
RUB 12 bln — AА+(RU).
Krasnoyarsk Krai, 35016 (ISIN RU000A0ZZM87), maturity date: September 12, 2025, issue volume:
RUB 12 bln — AА+(RU).
Rationale. In ACRA’s opinion, the bonds listed above are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of the Krasnoyarsk Krai.
REGULATORY DISCLOSURE
The credit ratings have been assigned to the Krasnoyarsk Krai and the bond issues of the Krasnoyarsk Krai (ISIN RU000A0ZYCM2, RU000A0ZYFB8, RU000A0ZZC48, RU000A0ZZM87) 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 rating of the Krasnoyarsk Krai and the credit ratings of the bond issues of the Krasnoyarsk Krai (ISIN RU000A0ZYCM2, RU000A0ZYFB8, RU000A0ZZC48, RU000A0ZZM87) were published by ACRA for the first time on October 9, 2017, October 10, 2017, November 7, 2017, July 2, 2018, and September 21, 2018, respectively.
The credit rating of the Krasnoyarsk Krai and its outlook and the credit ratings of the bond issues of the Krasnoyarsk Krai (ISIN RU000A0ZYCM2, RU000A0ZYFB8, RU000A0ZZC48, RU000A0ZZM87) 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 Krasnoyarsk Krai, 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 Krasnoyarsk Krai participated in the rating process.
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 Krasnoyarsk Krai. No conflicts of interest were discovered in the course of credit rating assignment.
