The credit rating of the Samara Region (hereinafter, the Region) stems from the moderately low debt load, low debt refinancing risks, and stable budget profile indicators, which include a rather high share of internal revenues. The Region’s rating is constrained by the economic development indicators that are somewhat behind the national averages, and a possible decline in available liquidity by the end of this year.
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 the country in terms of population (2.7 mln).
According to the Region’s estimates, its gross regional product (GRP) was RUB 2.67 tln in 2023. The largest companies in the Region are engaged in oil production and the manufacture of motor vehicles, aerospace, chemical and petrochemical products, and foodstuffs. The Region has a rather well-developed transport infrastructure.
KEY ASSESSMENT FACTORS
Moderately low debt load and low refinancing risks. According to ACRA’s estimates, the ratio of the Region’s debt to current revenues may grow from 25% as of the start of 2024 to 36% by the end of the year due to possible new borrowings required to partially cover the deficit stipulated by the budget law. The ratio of debt to GRP will amount to around 3.2%.
As of January 1, 2024, the Region’s debt was dominated by budget loans (82%), while bonds accounted for the remaining share (18%). The annual amount of debt repayments (refinancing) did not exceed 16% of the current debt. As of August 1, 2024, the size of debt declined by 10%, which was mainly due to the repayment of bonds, as a result of which the share of budget loans increased to 88%. Budget loans and other debt liabilities were not obtained over the first seven months of 2024.
Averaged1 interest expenses for 2021–2025 will be about 1.2% 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.
The weighted average maturity of the Region’s obligations was almost five years as of the start of this year, and the debt is diversified by type of obligations. The Region’s credit history is positive, and the local public sector enterprises do not have any debt obligations. The debt load of municipalities has been decreasing from year to year, and it amounted to 33% of their total tax and non-tax revenues (TNTR) at the beginning of 2024. The absolute size of the debt of municipal entities from January to July declined. The current account balance is consistently positive. In this regard, the qualitative assessment of the Region’s debt is at the maximum level.
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 has regularly deposited cash in banks. In 2024, due to a one-time excess of the transfer share threshold stipulated by the Budget Code, the Region will receive interest income from the operations of the Federal Treasury. As of January 1, 2024, the amount accumulated by the Region in bank accounts was two times higher than its average monthly budget expenditures for 2023. Over seven months of this year, account balances had increased by more than half. The liquidity ratio, calculated according to ACRA’s methodology, exceeded 600% last year and may decline significantly to below 100% in 2024 due to financing the significant budget deficit planned by the current version of the Region’s budget law.
Debt refinancing risks are assessed as minimal. The Region currently has no credit lines from commercial banks. There is no overdue payables of the regional budget. The qualitative assessment of liquidity is maximal.
Moderately high degree of budget self-sufficiency and sufficiently flexible budget expenditures. The averaged share of TNTR in the Region’s total revenues (excluding subventions) for 2021–2025 is expected to be 86%. The averaged ratio of the balance of current operations to current revenues (calculated as per ACRA’s methodology) for this period will be 9.6%, which is lower than the previous assessments and is due to planned growth of current revenues by 21% year-on-year in 2024. The ratio of averaged modified budget deficit to averaged current revenues will be negative. These indicators show that current revenues can cover current expenditures and there is a need to borrow funds or use account balances to finance capital expenditures. Averaged capital expenditures for 2021–2025 will amount to 20% of total budget expenditures (excluding subventions). In some years, a significant portion of expenditures has been covered using transfers from the federal budget, which meant the Region could not reallocate these funds to other purposes.
It is assumed that the Region’s budget will be executed with a deficit in 2024, which will be financed using funds in accounts and commercial borrowings. The legal framework that regulates the Region’s budget relations is stable. There is no information on any violations of budget laws. The Region ceased disclosing the structure of its TNTR forecast in 2020, but the accuracy of previous budget plans is assessed as high. In order to improve the performance of municipalities, the Region allocates incentive grants to them. The amount of tax benefits granted by the Region is not critical for its budget. The qualitative assessment of the budget profile is at the highest level.
Diversified and industrially developed economy. In 2019–2022, the Region’s averaged GRP per capita was just below 80% of the national average (ACRA applied a threshold value adjustment, since, according to the Agency’s estimates, the specified ratio will increase in 2023 and beyond). Last year, the unemployment rate in the Region was 2.0%, while the average monthly wage exceeded the regional subsistence minimum (for the working-age population) by more than 3.5x for the first time.
The Region’s economy is based on the manufacturing and oil production sectors (almost 20% of GRP each in 2022, respectively). The Region’s manufacturing sector is dominated by vehicle manufacture and chemicals.
The tax revenue diversification by industry is sufficiently high. 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 — 7% in 2023, according to ACRA’s estimates), oil and gas production (7%), and wholesale trade (9%).
key assumptions
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Maintaining a conservative debt policy;
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Using accumulated liquidity to finance the budget deficit.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Stable outlook assumes that the credit 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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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, 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 government securities (ISIN 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 government securities (ISIN RU000A0ZZ9P8, RU000A1020L5) of the Samara Region were published by ACRA for the first time on December 28, 2016, 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 government securities (ISIN 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.
