The credit rating outlook of Perm Krai (hereinafter, the Region) has been changed on the back of the growing operational balance of the Region. The rating is supported by the high self-sufficiency of the budget revenues and minimal debt load risks. The rating is restricted by the per capita economic indicators not exceeding the national averages.
The Perm Krai is located in the Volga Federal District. The population is 2.63 million people.
Key rating assessment factors
Industrialized regional economy is based on oil production and refining, chemical industry and manufacture of various types of equipment. The largest taxpayer in the Region is PJSC "LUKOIL" (including its subsidiaries), which owns oil production and refining assets, and oil products sales assets.
Flexible budget policy. In 2017, for the first time in seven years, the Perm Krai budget was executed with a surplus (approximately 0.7% of tax and non-tax revenues, TNTR), which was due to outstripping growth in revenues. The regional budget incomes grew by RUB 11.6 billion against 2016, and expenses increased by RUB 9.86 billion for the same period. The main driver of revenue growth is profit tax revenues (up by RUB 6.25 billion). More than a half of the increase in the profit tax revenues came from the electric power sector (up by RUB 2.3 billion) and chemical industry (up by RUB 1.2 billion).
The mandatory expenditures (in terms of the ACRA methodology) remained approximately the same in 2014–2017. Therefore, growing budget revenues allowed the Region to increase the development budget from 12.3% of budget expenditures in 2016 to 18.6% in 2017. In its turn, the operating balance increased to 20.6% in 2017, while it averaged to less than 12% in 2015–2016.
Well-balanced debt policy. As of May 01, 2018, the Region's liabilities (RUB 8.878 billion) included budget loans (RUB 8.859 billion) and a small amount of state guarantees. Thanks to the restructuring carried out in 2017, 94% of the Region's budget loans will be repayable in 2017–2024. The remaining 6% will be payable in 2023–2034. By the end of 2018, the Region is expected to repay about 4.7% of the budget loans.
As of January 01, 2018, the Region's debt portfolio included bank loans amounting to RUB 9.0 billion repayable in January 2018. The Region borrowed those loans in late 2017 in order to maintain the budget liquidity in the period of the New Year holidays. By February 1, 2018, the above bank loans were repaid.
In 2017, debt service costs accounted for less than 1% of the operating balance of the Region's budget. ACRA expects that in 2018, debt service costs will also remain insignificant (less than 0.7% of the operating balance).
Key assumptions
- The debt and liquidity management policies will remain unchanged;
- The 2017–2018 budget deficit will not exceed 2% of tax and non-tax revenues or the budget will be executed with a surplus;
- The GRP growth will be positive in 2017–2019.
Potential outlook or rating change factors
The Positive outlook assumes that the rating will most likely change within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- Personal incomes and real GRP outpacing the national averages;
- The budget share of capital expenditures exceeding 18% in 2018–2019.
A negative rating action may be prompted by:
- Shrinking operating balance;
- A substantial increase in debt load and debt service costs.
Regulatory disclosure
The credit rating of the Perm Krai was 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 Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of the Perm Krai was first published by ACRA on December 04, 2017. The credit rating of the Perm Krai and its outlook are expected to be revised within 182 days following the rating action date (May 29, 2018) as per the 2018 Calendar of planned sovereign credit rating revisions and publications.
The credit rating was assigned based on the data provided by the Perm Krai, 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 rating is solicited, and the Perm Krai Government participated in the rating process.
No material discrepancies between the provided data and the data officially disclosed by the Perm Krai in its financial statements have been discovered.
ACRA provided no additional services to the Perm Krai Government. No conflicts of interest were discovered in the course of credit rating process.
