The credit rating of the Krasnoyarsk Krai (hereinafter, the Region) is based on the Region’s strong economic profile, stable budget profile indicators, high share of internal revenues, and a debt repayment schedule posing no refinancing risk in the short term.
The outlook reflects ACRA’s expectations that the Region’s debt load will stabilize at 35−37% of current revenues while maintaining sufficient funds in budget accounts if budget revenues fall.
The Region is a part of the Siberian Federal District. The Region’s population is nearly 2.9 mln people. According to the Region, its GRP will amount to RUB 2.3 tln for 2019.
Key rating assessment factors
A decrease in internal budget revenues at the end of the current year may lead to a deficit above the planned level. The Region’s budget law1 provides for a reduction in tax and non-tax revenues (TNTR) by 12% (RUB -31.1 bln) in 2020. One of the main reasons for this will be the projected 26% reduction in income tax revenues (RUB -34.4 bln). An increase in transfers by 9% (RUB 3.4 bln) compared to 2019 should partially compensate for the decrease in budget revenues, which means that the Region’s revenues could drop by only 10% (RUB -27.6 bln). Growth in expenses is expected to be 11% (RUB 28.5 bln) compared to last year. The Region plans to finance the resulting deficit of 9% TNTR (RUB 19.6 bln) mainly with accumulated liquidity, but it will have to attract debt financing to cover the remaining part of the deficit.
For 6M 2020, the Region’s internal revenues decreased by 13% compared to the same period in 2019. The most significant decrease was in income tax (-22%), taxes on total income (-22%), and property tax (-20%). However, transfers increased by 31%. Budget expenses increased by 11%, and the budget deficit for H1 2020 amounted to 9% TNTR (RUB 8.7 bln).
ACRA believes that by the end of 2020, the budget’s tax revenues could drop more significantly than previously expected, which should affect budget expenses. However, according to ACRA, the payment of a large fine to PJSC “MMC “Norilsk Nickel” will not have a significant impact on budget expenses, since the fine will not affect the company’s profits. ACRA believes that the deficit at the end of the year may also be higher than planned and that it will be financed by, among other things, increasing debt.
According to ACRA, the current account balance to current income ratio, which steadily increased from 0.2% in 2015 to 24% in 2019, may decrease to 5% by the end of 2020. The averaged2 value of this ratio should equal 13% for 2017-2021 and remain at a moderately high level.
ACRA assesses the share of capital expenses in total expenses as moderately high. The averaged value of this indicator should be about 14% for 2017−2021. The averaged share of TNTR in income (excluding subventions) should amount to 89% for this period, which indicates a moderately high level according to ACRA’s methodology.
ACRA expects the averaged ratio of the modified budget deficit to current income to be positive (0.3%) for 2017−2021.
1 Law of the Krasnoyarsk Krai No. 8-3414, dated December 5, 2019 (as amended April 2, 2020) “On the regional budget for 2020 and the planning period 2021-2022.”
2 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.
Uniform debt repayment schedule with minimal refinancing risks in the short term. The Region’s debt has not changed since the beginning of 2020 and amounted to RUB 82 bln as of August 1, 2020. Bonds make up 73%, budget loans make up 27%, and the volume of other debt instruments is insignificant. The debt repayment schedule is balanced with no significant peaks in terms of payments. If the current payment schedule for restructured budget loans is maintained, the Region will have to pay no more than 23% of the debt annually over the next five years. By the end of this year, the Region will have to repay 8% (RUB 6.9 bln). However, ACRA believes that it will be exempt from planned payments on budget loans, which will reduce the repayment volume by RUB 2.3 bln.
At the end of 2019, the debt to current income ratio was 30%. According to ACRA, this figure may grow to 36% by the end of 2020 due to a possible reduction in TNTR. Interest expenses are not burdensome for the Region, with the averaged level for 2017−2021 estimated at about 3% of total budget expenses (excluding subventions).
Since the beginning of 2019, account balances at the end of the month have exceeded half of the Region’s monthly budget expenses. The Region’s budget law assumes that most free liquidity will be used to finance possible deficits. The use of loans from the Federal Treasury as well as autonomous and budgetary institutions will help avoid possible cash gaps.
Moderately high concentration on the metals sector determines the Region’s economic profile. The Region’s averaged GRP per capita stood at 134% of the national average. ACRA notes that the Region’s per capita GRP grew faster than the national average in 2014−2018. The ratio of averaged wages to regional subsistence minimum exceeded 350% in 2016−2019. Averaged unemployment calculated according to the ILO methodology totaled 4.9% for the same period.
ACRA estimates that the metallurgy and non-ferrous metals sectors have accounted for 30% to 40% of the Region’s tax revenues in the past. The Region’s two largest taxpayers work in these sectors. Fossil fuel extraction contributes up to 15% of tax revenues.
- Maintaining TNTR in 2020 below 16% compared to 2019;
- Reduced budget expenses and revenues;
- Executing the 2020 budget with a deficit below 10% TNTR;
- Growth in debt below 7% in 2020 compared to 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:
- Maintaining the current level of liquidity;
- Maintaining a positive modified budget deficit;
- Stable debt to current income at 35−37%;
- Increase in internal revenues.
A negative rating action may be prompted by:
- Sharp increase in short-term debt;
- Sudden need for debt financing;
- Significant increase in the budget deficit leading to a noticeable increase in debt load.
Krasnoyarsk Krai, 35016 (ISIN RU000A0ZZM87), maturity date: September 12, 2025, issue volume: RUB 12 bln — А+(RU).
Krasnoyarsk Krai, 35015 (ISIN RU000A0ZZC48), maturity date: June 26, 2025, issue volume: RUB 12 bln — А+(RU).
Krasnoyarsk Krai, 35014 (ISIN RU000A0ZYFB8), maturity date: October 31, 2024, issue volume: RUB 7.8 bln — А+(RU).
Krasnoyarsk Krai, 34013 (ISIN RU000A0ZYCM2), maturity date: October 3, 2024, issue volume: RUB 10 bln — А+(RU).
Krasnoyarsk Krai, 34012 (ISIN RU000A0JWXF0), maturity date: October 25, 2023, issue volume: RUB 18.231 bln — А+(RU).
Rationale. In ACRA’s opinion, the bonds listed above are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of Krasnoyarsk Krai.
The credit ratings have been assigned to the Krasnoyarsk Krai and bonds issued by the Krasnoyarsk Krai (RU000A0ZZM87, RU000A0ZZC48, RU000A0ZYFB8, RU000A0ZYCM2, RU000A0JWXF0) 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 ratings assignment to 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 rating of the Krasnoyarsk Krai and the credit ratings of bonds issued by the Krasnoyarsk Krai (RU000A0ZZM87, RU000A0ZZC48, RU000A0ZYFB8, RU000A0ZYCM2, RU000A0JWXF0) were published by ACRA for the first time on October 9, 2017, September 21, 2018, July 2, 2018, November 7, 2017, October 10, 2017, and October 10, 2017, respectively.
The credit rating of the Krasnoyarsk Krai and its outlook as well as the credit ratings of bonds issued by the Krasnoyarsk Krai (RU000A0ZZM87, RU000A0ZZC48, RU000A0ZYFB8, RU000A0ZYCM2, RU000A0JWXF0) are expected to be revised within 182 days following the publication date of this press release as per the Calendar of planned sovereign credit rating revisions and publications.
The credit ratings were assigned based on data provided by the Krasnoyarsk Krai Government, 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 Krasnoyarsk Krai Government participated in the rating process.
No material discrepancies between the provided data and data officially disclosed by the Krasnoyarsk Krai in its financial report have been discovered.
ACRA provided no additional services to the Krasnoyarsk Krai Government. No conflicts of interest were discovered in the course of credit rating assignment.