The credit rating of Saint Petersburg (the City) is based on the well-developed regional economy, balanced budget structure, sufficient budgetary discipline, low current and projected debt load, and excessive budget liquidity.
St. Petersburg is a city of federal importance. 3.5% of the Russian population live there, and the local GRP amounts to nearly 5% of the aggregate GRP of the Russian Federation.
Key rating assessment factors
Balanced budget structure and sufficient budgetary discipline. The City budget is characterized by high self-sufficiency with its own revenues expected to average 99% in 2016–2019, and mandatory expenditures around 71%. ACRA expects that the growth in the City’s mandatory spending will not exceed 7% on a year-on-year basis in 2018 with regular revenues seen rising by 10%. As a result, operating balance will increase to 19% of regular revenues in 2018 compared to 17% last year. Based on the dynamics of tax revenues in the first nine months of the year, taxes from such industries as trade (Gazprom Neft PJSC, ACRA rating: AAA(RU), outlook Stable, belongs to this sector in accordance with the Russian Classification of Economic Activities), manufacturing and transport will be the main engine of growth. The City’s annual capital expenditures total roughly 20%. ACRA believes that the City’s budget deficit will not exceed 3% of tax and non-tax revenues in 2018. The current parameters of the 2019 budget suggest that the deficit will be 9% of tax and non-tax revenues.
Low current and projected debt load. The City’s budget deficit, which will be formed as a result of the budget implementation in 2018, can be financed using account balances, or bank debt. In 2019, the City’s budget deficit can also be financed through commercial debt. Based on the scenario that envisages the growth of the commercial debt, the City’s debt burden will total 0.4x of the operating balance in 2018 and 0.82x in 2019. These indicators correspond to the low level of risk. The structure of the City’s debt at the end of 2018 will depend on a method it will choose to finance the deficit, but generally at least 75% of the debt will be represented by long-term bonds. There are no risks of refinancing in the medium term. Debt service costs are not burdensome.
Excessive budget liquidity. The City has a sufficient level of liquidity to regularly place funds on deposits and timely fulfill all of its expenditure obligations. The average monthly deposit amount covered more than half of average monthly budget expenditures in the second half of 2018.
Key assumptions
- The City will continue to control the growth rate of mandatory expenses;
- The budget capex will remain at 20%;
- High budget liquidity;
- The economic growth rate will remain sustainably higher than the national average.
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:
- Deceleration of economic growth coupled with lower tax revenues and inability to reduce budget expenditures;
- A substantial growth of debt load against the operational budget balance
Issue ratings
Saint Petersburg, 35001 (ISIN RU000A0ZYHX8); maturity date — May 28, 2025, issue volume — RUB 30 bln. — AAA(RU).
Saint Petersburg, 35002 (ISIN RU000A0ZYKJ1); maturity date — December 4, 2026, issue volume — RUB 25 bln. — AAA(RU).
Credit rating rationale. In ACRA’s opinion, the above bonds issued by Saint Petersburg are senior unsecured debt instruments, which credit ratings are equal to that of Saint Petersburg.
Regulatory disclosure
The credit ratings were assigned to Saint Petersburg and bonds (ISIN RU000A0ZYHX8, RU000A0ZYKJ1) issued by Saint Petersburg 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. In assigning credit ratings 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 was also applied.
The credit ratings assigned to Saint Petersburg and the bonds (ISIN RU000A0ZYHX8, RU000A0ZYKJ1) issued by Saint Petersburg were first published by ACRA on June 27, 2017, December 4, 2017, and December 12, 2017, respectively. The credit ratings assigned to Saint Petersburg and the bonds (ISIN RU000A0ZYHX8, RU000A0ZYKJ1) issued by Saint Petersburg are expected to be revised within 182 days following the rating action date (December 20, 2018) as per the Calendar of planned sovereign credit rating revisions and publications.
The credit ratings are based on data provided by Saint Petersburg City Government, information from publicly available sources (the RF 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 Saint Petersburg City Government participated in their assignment.
No material discrepancies between the provided data and the data officially disclosed by Saint Petersburg in its financial reports have been discovered.
ACRA provided no additional services to Saint Petersburg City Government. No conflicts of interest were discovered in the course of credit rating assignment and affirmation.
