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 is expected to reach RUB 3,254 bln in 2017, which is about 4–5% of the total GRP of Russia; traditionally, the Region has been among the leaders by GRP. The backbone of the regional economy is extracting industry, predominantly, oil production, which generates two thirds of the GRP.
Key rating assessment factors
High budget self-sufficiency. 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 29.5% share of the profit tax proceeds collected in the Region goes to the Tyumen Region's budget (the share is regulated by the agreement between the Tyumen Region and the Region). In 2015–2018, the average share of tax and non-tax revenues is expected to reach 97% of the total revenues (excluding subventions). In the above period, the share of mandatory expenditures (according to ACRA methodology) has been growing. In accordance with the current version of the Budget Law, the share is to stabilize at about 77% by late 2018.
In 2017, the capital expenditures somewhat declined because of shrinkage in regular revenues and lower reserves of the regional budget, and, according to ACRA's estimations, the capital expenditures in 2018 will be much lower than in 2016. This year, unlike previous years, the combination of high oil prices and low ruble exchange rate has resulted in historically high ruble prices of oil. Therefore, the Region's expectations on its own revenues has been growing this year; in particular, the expected budget shortage has declined from 12% to 4% of own revenues, as indicated in the budget version dated September 14, 2018.
Negative net debt, comfortable debt repayment schedule and high budget liquidity. As of September 1, 2018, the volume of account balances was over three times higher than the total debt of the Region. The debt portfolio includes 90% of bonds and 10% of budget loans with maturity in 2019. The debt-to-balance ratio expected at the end of 2018 is around 24% (i.e. the level of risk is minimal), and the operating balance, net of interest expenses, will many times exceed the volume of debt to be repaid in 2018.
Key assumptions
- The Region will maintain its counter-cyclical budget policies in planning budget expenditures;
- The 2018 budget will be executed with a deficit of not more than 5% of tax and non-tax revenues;
- The Region will maintain 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 Region’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 (September 18, 2018) as per the 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.
