The credit rating assigned to the Tomsk Region (hereinafter, the Tomsk Region, the Region) is determined by a comparably high level of debt load in relation to operating balance, limited flexibility in budget expenses, and moderate regional economic development compared to the national average.
The Tomsk Region is located in the Siberian Federal District and is home to 1.1 million people (0.7% of the Russian population). In 2018, the Region’s GRP amounted to RUB 532 bln, about 0.7% of the total GRP for all subjects of the Russian federation. Almost one third of the Region’s territory is unpopulated due to the large area of wetlands and forests. The Region is a major educational center and in 2017 ranked second after Moscow in terms of the number of students per 10 thousand inhabitants among Russian regions.
Key rating assessment factors
The Region’s debt load level is average and it needs to refinance over half of its debt obligations in the next two years. The Region’s total debt to operating balance ratio is expected to be at 2.3x by the year-end 2019, i.e. to remain unchanged as compared to the beginning of this year. This ratio value corresponds to a heightened level of risk according to ACRA’s methodology. As the Region’s budget includes a substantial share of bank loans that are occasionally refinanced by loans from the Federal Treasury Department, the operating balance after interest payments to debt repayment amount ratio in the current period is low (around 1.5x), while over half of the debt will have to be refinanced in the next two years. Regardless of the above, the interest payments are not cumbersome for the Region’s budget. As of September 1, 2019, the Region’s debt comprised bonds (one third of the total), bank loans (22%), budget loans (29%), and loans from the Federal Treasury Department (16%). The Region’s debt profile also features bonds with a put provision available for purchase by the population. Such bonds account for 29% of the Region’s total bonds outstanding as of September 1, 2019. The deficit stipulated by the current budget law could lead to an increase in debt by 14% by the end of 2019. The final overall assessment of the Region's debt load as at year-end 2019 would correspond to the average level of credit risk. In the medium-term, the debt load and budget indicators will depend on income tax revenues, whose volatility is attributable to the dynamics of the mineral resources (the Region’s main contributor to GRP) and related industries.
The flexibility of the Region’s budget expenses is low, and the budget depends on its dominant industry and federal transfers. The Region’s budget indicators depend on income tax revenue and are sensitive to fluctuations in the amount of received transfers. The volatility of income tax revenues is due to several factors: for example, regional taxpayers who are part of the consolidated group of taxpayers (CGT), and oil price dynamics in rubles. The regional budget law estimates 2019 income tax revenues at the same level as seen in 2018. The composition of the Region’s own revenues will see little changes in the current year; their share, however, is declining in 2019 (from the average of 83% seen in 2016-2018 to 78%) owing to higher non-repayable cash inflows including other inter-budget transfers. At the same time, mandatory expenditures are high, around 74% of total budget expenses. The share of capital expenses grows in the current year owing to both higher non-repayable cash inflows (this trend is present in many regions rated by ACRA) and increase in own funds used to pay for such expenses. As transfers may be temporary, they do not increase the operating balance, which averaged 20% of regular revenues of the Region in 2016-2019.
The Region’s economy is dependent on oil production, and household income is low relative to the national average. Almost a third of the Region’s GRP (28% in 2017) comes from mining operations, mainly oil. Deterioration in the structure of remaining reserves, the production of highly developed fields, and the increase in the share of hard-to-recover reserves have led to a decline in oil production in the Region over the past five years. GRP per capita and per capita income remain below the national average while unemployment exceeds the national average.
The Region’s budget liquidity is sufficient. In order to finance projected cash gaps, the Region can pull cash both from commercial banks as part of pre-concluded agreements on the opening of credit lines, and from short-term budget loans from the Federal Treasury.
- Fulfillment of the planned amount of tax revenues in 2019;
- A responsible budget policy aimed at realistic revenue planning.
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:
- Increase in tax base regarding income tax if measures offered by the regional administration to increase the production rates of mature oil fields have a positive economic effect;
- Fulfillment of the regional budget with a surplus and the use of said surplus to reduce the Region’s public debt;
- Lower reliance on external sources of liquidity.
A negative rating action may be prompted by:
- A shift in the Region’s debt book maturity profile towards short-term debt instruments;
- Lower regular revenues amid stable expenditures in 2019-2021.
Non-fulfillment of the action plan aimed at increasing tax and non-tax revenues in 2019–2021, associated with the deterioration of the Region's liquidity.
Tomsk Region, 34055 (ISIN RU000A0JW1K9), maturity date: June 19, 2023, issue volume: RUB 7 bln — BBB(RU);
Tomsk Region, 34062 (ISIN RU000A0ZYMJ7), maturity date: December 19, 2024, issue volume: RUB 7 bln — BBB(RU).
Credit rating rationale. In ACRA’s opinion, the above bonds issued by the Tomsk Region are senior unsecured debt instruments, and their credit rating is equal to the rating assigned to the Tomsk Region.
The credit ratings have been assigned to the Tomsk Region and to bonds issued by the Tomsk Region (RU000A0JW1K9, RU000A0ZYMJ7) under the national scale for the Russian Federation based on the Methodology for Credit Rating 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 process of credit rating assignment of the above issues, 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 ratings assigned to the Tomsk Region and to issues of government securities of the Tomsk Region (RU000A0JW1K9, RU000A0ZYMJ7) were published by ACRA for the first time on April 10, 2018.
The credit rating of the Tomsk Region and its outlook as well as the credit ratings of government securities issues of the Tomsk Region (RU000A0JW1K9, RU000A0ZYMJ7) are expected to be revised within 182 days following the publication date of this press release in compliance with the Calendar of planned sovereign credit rating revisions and publications.
The credit ratings were assigned based on the data provided by the Administration of the Tomsk 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 Administration of the Tomsk Region participated in their assignment.
No material discrepancies between the data provided and the data officially disclosed by the Tomsk Region in its financial report have been discovered.
ACRA provided no additional services to the Administration of the Tomsk Region. No conflicts of interest were discovered in the course of credit rating assignment.