ACRA revoked the status “Rating under revision: positive” and upgraded the credit rating of the Volgograd Region (the Region) after the Region obtained the RUB 4,532.12 million budget loan due December 05, 2022 from the RF Ministry of Finance to repay the Region’s debts.

The above budget loan and the restructuring of budget loans make the Region’s debt load profile much healthier.

Key rating assessment factors

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 obtained 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 the budget loans maturing in 2018–2024.

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 the 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

A positive rating action may be prompted by:

  • Growing economic indicators (GRP per capita, income per capita) (against the national average figures);
  • Budget deficit decreasing below 1% of tax and non-tax revenues in 2018.

A negative rating action may be prompted by:

  • A substantially lower operating balance;
  • Debt service costs substantially higher than the operating balance.

Issue ratings

Credit rating rationale. In ACRA’s opinion, the below bonds issued by the Volgograd Region are senior unsecured instruments, and their credit rating is equal to the rating assigned to the Volgograd Region.

Key issue properties

1)     RegS / ISIN: RU35003VLO0 / RU000A0JTXF6

Issue volume / outstanding

RUB 5 bln / RUB 1.5 bln

Issue date / Maturity

May 21, 2013 / June 14, 2018

 

2)     RegS / ISIN: RU35004VLO0 / RU000A0JU6P9

Issue volume / outstanding

RUB 2 bln / RUB 1 bln

Issue date / Maturity

October 8, 2013 / November 01, 2018

 

3)     RegS / ISIN: RU35005VLO0 / RU000A0JUP89

Issue volume / outstanding

RUB 5 bln / RUB 2.75 bln

Issue date / Maturity

June 19, 2014 / July 13, 2019

 

4)     RegS / ISIN: RU35006VLO0 / RU000A0JVU65

Issue volume / outstanding

RUB 5 bln / RUB 4.5 bln

Issue date / Maturity

October 7, 2015 / October 30, 2020

 

5)     RegS / ISIN: RU35007VLO0 / RU000A0JXSD3

Issue volume / outstanding

RUB 10 bln / RUB 10 bln

Issue date / Maturity

June 2, 2017 / June 2, 2024

Regulatory disclosure

The credit ratings of the Volgograd Region and the bonds issued by the Volgograd Region 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. In the course of the credit rating process relating to the above bond issues, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation has also been used.

For the first time, the credit rating assigned to the Volgograd Region was published by ACRA on June 26, 2017. The credit rating of the Volgograd Region and its outlook are expected to be revised within 182 days following the rating action date (December 15, 2017) as per the 2017-2018 Calendar of planned sovereign credit rating revisions and publications.

For the first time, the credit rating assigned to the sovereign bonds issued by the Volgograd Region was published by ACRA on June 27, 2017. The credit rating is expected to be revised within 182 days following the rating action date (December 15, 2017) as per the 2017-2018 Calendar of planned sovereign credit rating revisions and publications.

The credit ratings were upgraded based on the data provided by the Volgograd Region, information from publicly available sources (the Ministry of Finance, the Federal State Statistics Service, and the Federal Tax Service), as well as ACRA’s own databases. The credit ratings are solicited, and the Administration of the Volgograd Region participated in the rating process.

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 Administration of the Volgograd Region. No conflicts of interest were discovered in the course of the credit rating process.

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Analysts

Elena Anisimova
Senior Director — Head of Sovereign and Regional Ratings Group
+7 (495) 139 04 86
Maxim Pershin
Associate Director, Sovereign and Regional Ratings Group
+7 (495) 139 04 85
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