The credit rating of the Tambov Region (hereinafter – the Region) is determined by the stable indicators of budget discipline, sufficient budget liquidity, agricultural specifics of the regional economy, the need of refinancing a significant amount of short-term debt, and a potential increase in debt load.
The Tambov Region is located in the Central Federal District, and borders five regions. A little less than 1% of the RF population live in the Region. According to the projected data, in 2016, the Region’s GRP amounted to RUB 358 bln (roughly 0.5% of the aggregate national GRP). The regional economy is focused on the agricultural sector: up to a third of the Region’s GRP is formed by income generated by this sector (specifically pertaining to agriculture and food processing).
Key rating assessment factors
Relatively weak development of the regional economy is determined by its agricultural orientation. Agriculture (mainly crop production) accounts for up to a quarter of the regional GRP (the Tambov Region ranks 4th in the Central Federal District by produced agricultural products in monetary terms), while food processing lays the basis for industrial production (up to half of industrial output volume). The Region’s development is constrained by the capacity of enterprises to process agricultural products produced on its territory, which, however, will gradually be offset by the increase of processing capacities and deepening of raw materials processing.
Stable budget discipline indicators with large share of capital expenditures. While the regional budget is marked by a medium self-sufficiency level, the budget discipline indicators show high capital expenditures, which, however, gradually decline (from 31% in 2014 to 21% in 2017). Mandatory spending of the budget (61% on average in 2014-2017), has no adverse effect on the Region’s operating balance, but rises gradually. Tax proceeds to the Region’s budget are deemed to be well diversified in terms of specific taxpayers – the share of 10 largest taxpayers within total tax proceeds does not exceed 21% in 2014-2016. In addition, ACRA highlights budget risks associated with tax base concentration on allied industries, i.e. agriculture, and processing of agricultural products. The aggregate share of these industries within the Region’s GRP is roughly 30%, in tax proceeds – 15%. Further growth in proceeds will correlate with wage dynamics, and deepening of agricultural products processing.
Likely reduction of refinancing risks amid growing debt load. Likely receipt of fiscal loans by the Region in 2017 and entering into long-term agreements with banks in the same year lower potential refinancing risks for the Region. However, ACRA believes that the Region will be forced to increase the amount of debt as compared to the figures currently planned for 2018-2019. Nevertheless, the Region's debt to operating balance ratio would remain safe in the forecast period (not exceeding 2x as of end-2019), while debt service expenses would not exceed 20% of the operating balance.
Sufficient budget liquidity. The Region has sufficient liquidity for timely fulfillment of its expenditure obligations, including interest payments. However, the budget account balances at the beginning of a month are mostly lower than expenditures for the current month, so the Region is regularly in need of financing expected cash gaps; hence, in order to replenish account balances and bank credit lines short-terms loans provided by the Federal Treasury Department are used.
Key assumptions
- Using short-term loans provided by the Federal Treasury Department for financing cash gaps;
- Financing of Region’s budget deficit through market debt instruments;
- Improvement of regional debt structure in terms of maturity;
- Retaining the share of mandatory expenditures at the level within 65% of budget expenditures;
- Receiving the amount of transfers in 2017 not lower than in 2016;
- High regional GRP growth rate.
Potential outlook or rating change factors
The Stable outlook assumes that the rating will most likely stay unchanged within the
12 to 18-month horizon.
A positive rating action may be prompted by:
- Positive economic and tax effect on the back of growing output of high value-added products;
- Household income growth ahead of the national average growth rate;
- Decreasing budget dependence on external liquidity sources.
A negative rating action may be prompted by:
- Increasing mandatory expenditures of the Region’s budget;
- Material decline in capital expenditures of the budget;
- Growing unemployment in the Region.
Issue ratings
ACRA assigns BBB+(RU) to:
The Tambov Region, 35002 (ISIN RU000A0JWT75); redemption: September 20, 2023; issue volume: RUB 1.6 bln.
The Tambov Region, 35003 (ISIN RU000A0JXVH8); redemption: July 12, 2024; issue volume: RUB 3.5 bln.
The Tambov Region, 35004 (ISIN RU000A0ZYJ18); redemption: December 5, 2025; issue volume: RUB 3 bln.
Rationale. The Agency believes that bonds issued by the Tambov Region have a status of senior unsecured debt. Credit ratings of these debt instruments correspond to the credit rating of the Tambov Region.
Regulatory disclosure
he credit ratings of the Tambov Region and bonds issued by the Tambov Region (ISIN RU000A0JWT75, RU000A0JXVH8, RU000A0ZYJ18) 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 assigning credit ratings to the bond issues above, 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, a credit rating of the Tambov Region was published by ACRA on July 3, 2017. The credit rating of the Tambov Region and its outlook are expected to be revised within 182 days following the rating action date (December 21, 2017) as per the 2017-2018 Calendar of planned sovereign credit rating revisions and publications.
For the first time, credit ratings of the RU000A0JWT75, RU000A0JXVH8, and RU000A0ZYJ18 government bonds of the Tambov Region were published by ACRA on July 11, 2017, July 14, 2017, and December 13, 2017, respectively. The credit rating is expected to be revised within 182 days following the rating action date (December 21, 2017) as per the 2017-2018 Calendar of planned sovereign credit rating revisions and publications.
The assigned and affirmed credit ratings are based on the data provided by the Tambov 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 Tambov Region Administration participated in their assignment.
No material discrepancies between the provided data and the data officially disclosed by the Tambov Region in its financial report have been discovered.
ACRA provided no additional services to the Tambov Region Administration. No conflicts of interest were discovered in the course of credit rating assignment and affirmation.
