The credit rating of the Khanty-Mansiysk Autonomous Okrug – Ugra (hereinafter, the Region) is based on highly developed regional economy, high liquidity of the Region's budget and a comfortable debt repayment schedule.
The Region is located in the Ural Federal District and borders six regions of Russia. The Region is an administrative subject of the Russian Federation and, at the same time, it is a part of the other administrative subject of the Russian Federation, namely, the Tyumen Region. The population is 1.6 mln people. The Region’s GRP amounted to RUB 3,031.2 bln in 2016 (the fourth place in Russia after Moscow, Saint Petersburg and the Moscow Region).
Key rating assessment factors
Oil-producing region with high per capita income and low unemployment. The Region is one of the donor regions for the federal budget: in 2017, on average 9.1% of the total payments collected in the Region and received by the consolidated budget of the Russian Federation remained in the Region’s budget. The per capita GRP and per capita income significantly exceed the national average figures (4.1x and 1.4x, respectively, in 2015–2017). The rate of unemployment (according to ILO methodology) declined from 4.5% in 2016 to 3.3% in 2017 (in 2017, the Russian average was 5.5%).
Highly self-sufficient budget. In 2014-2017, the share of tax and non-tax revenues was 97% of the total revenues (excluding subventions) on average. The share of mandatory expenditures (according to ACRA methodology) has grown from 73% in 2014–2016 to 82.8% in 2017–2018., which is caused by the need to maintain financing of social security programs and the declining development budget. The decline in the 2017–2018 development budget is a result of regular revenues shrinkage against previous years and lower reserves of the regional budget. In ACRA's opinion, the decline in the capital expenditures funded by the Region's budget will not affect the socio-economic standing of the Region as, in the territory of the Tyumen Region, including KhMAO-Yugra, regional social, infrastructure and investment programs are being implemented to the benefit of the entire population of the Tyumen Region, including KhMAO-Yugra. Such programs are financed out of the Tyumen Region's budget, which includes 29.5% of profit tax revenues collected in the Region. Such collections are not reflected in revenues or expenditures of the Region's budget, and their amount is set forth in the agreements between the Tyumen Region and the two autonomous regions (KhMAO and YaNAO). In essence, such transfers are a part of the Region's development budget.
In 2017, the Region's budget was executed with a deficit of -10.1% of tax and non-tax revenues (RUB 17.2 billion rubles). The budget deficit is caused by decreasing income tax revenues to RUB 45.2 billion (which is RUB 20.2 billion and RUB 55.3 billion lower than the levels of 2016 and 2015, respectively). In 2018, ACRA expects that the income tax revenues will grow to RUB 55-60 billion and a budget deficit of less than 5% of tax and non-tax revenues.
Comfortable debt repayment schedule and high budget liquidity. At the beginning of 2018, the Region's financial reserves exceeded 80% of the commercial debt. The ratio of operating balance less interest expense to repayments due in 2018 indicates the minimum risk level. Debt portfolio includes 90% of bonds and 10% of budget loans (with the maturity in late 2019). 14.7% of the debt portfolio is to be repaid in 2018 and about 68% in 2020-2024.
Key assumptions
- 2018 budget expenditures at RUB 200 bln, or a growth in expenditures amid a proportionate increase in revenues;
- Annual proceeds of the regional budget from corporate income tax payments of RUB 55-60 bln in 2018-2019;
- 2018 budget execution with a deficit of less than 5% of tax and non-tax revenues;
- Maintaining high liquidity of the budget.
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 negative rating action may be prompted by:
- Higher social spending by the Okrug’s budget without respective increase in its revenues;
- Substantial increase of budget deficit;
- Significant change in the inter-budget relations in Russia.
Issue ratings
Khanty-Manskiysk Autonomous Okrug – Ugra, 34001 (ISIN RU000A0JUWB5), maturity date: October 13, 2019, issue volume: RUB 14 bln, — ААА(RU);
Khanty-Manskiysk Autonomous Okrug – Ugra, 35001 (ISIN RU000A0JX215), maturity date: December 18, 2023, issue volume: RUB 6 bln, — ААА(RU);
Khanty-Manskiysk Autonomous Okrug – Ugra, 35002 (ISIN RU000A0ZYKW4), maturity date: December 17, 2024, issue volume: RUB 7 bln, — ААА(RU).
Rationale. ACRA is of the opinion that the above bonds issued by the Khanty-Manskiysk Autonomous Okrug - Ugra are senior unsecured debt instruments, which credit ratings are equal to that of the Khanty-Manskiysk Autonomous Okrug - Ugra.
Regulatory disclosure
The credit ratings of the Khanty-Manskiysk Autonomous Okrug - Ugra and bonds (ISIN RU000A0JUWB5, ISIN RU000A0JX215, ISIN RU000A0ZYKW4) issued by the Khanty-Manskiysk Autonomous Okrug - Ugra under the national scale for the Russian Federation were assigned and affirmed based on the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation, and the Key Concepts Used by Analytical Credit Rating Agency within the Scope of Its Rating Activities. In the course of assigning a credit rating to the bond issues above, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also used.
The credit rating of the Khanty-Manskiysk Autonomous Okrug - Ugra and the credit ratings of the government bonds (ISIN RU000A0JUWB5, ISIN RU000A0JX215, ISIN RU000A0ZYKW4) issued by the Khanty-Manskiysk Autonomous Okrug - Ugra were first published by ACRA on September 26, 2017, September 28, 2017, September 28, 2017, and December 15, 2017, respectively.
The credit rating of the Khanty-Manskiysk Autonomous Okrug - Ugra and its outlook, as well as the credit ratings of the government bonds (ISIN RU000A0JUWB5, ISIN RU000A0JX215, ISIN RU000A0ZYKW4) issued by the Khanty-Manskiysk Autonomous Okrug - Ugra are expected to be revised within 182 days following the rating action date (March 23, 2018) as per the 2018 Calendar of planned sovereign credit rating revisions and publications.
The credit ratings were assigned and affirmed based on the data provided by the Khanty-Manskiysk Autonomous Okrug - Ugra, 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 Government of the Khanty-Manskiysk Autonomous Okrug - Ugra participated in the rating process.
No material discrepancies between the provided data and the data officially disclosed by the Khanty-Mansiysk Autonomous Okrug - Ugra in its financial statements have been discovered.
ACRA provided no additional services to the Government of the Khanty-Mansiysk Autonomous Okrug - Ugra. No conflicts of interest were discovered in the course of credit rating process.
