The credit rating of Saint Petersburg (hereinafter, the City) is based on the City’s well-developed economy, balanced budget structure, low debt load, and high budget liquidity.
Saint Petersburg is a city of federal importance and home to 3.7% of Russia’s population. The City’s GRP is about 5% of Russia’s total gross regional product (GRP).
Key rating assessment factors
Low current and projected debt load. The City’s debt to operating income ratio (according to ACRA’s methodology) may increase from 5% as of the end of 2019 to 23% as of the end of 2020 due to an expected decline in the City’s tax and non-tax revenues (TNTR) this year compared to 2019, and new borrowings to finance the budget deficit as stipulated by the City’s budget law. Nevertheless, this indicator corresponds to a low debt load. ACRA expects that the City’s debt load will remain below 50% of TNTR in 2021–2022. As of November 1, 2020, the City’s debt was composed exclusively of bond loans with maturities in 2022–2027. Debt service costs are not burdensome for the City’s budget.
High budget liquidity. The City fulfills its expense obligations on time and regularly deposits temporarily free funds with banks and via repo operations secured by federal bond loans and the City’s bonds. As of September 1, 2020, the City’s temporarily free funds were comparable to the average monthly expenditures of the City budget for eight months of 2020.
Balanced budget structure and sufficient budget discipline. The City’s budget is highly self-sustainable. For 2017–2021, the average1 ratio of TNTR to internal revenues (excluding subventions) should amount to 97%. Capital expenditures should average 17% of total spending (excluding subventions) for the aforementioned period. In 2017–2021, the average current account balance to operating income ratio should equal 6%, and the ratio of the average modified budget deficit to operating income should amount to -10%. These indicators show that operating income is sufficient to cover current expenditures and indicate the need for borrowing to finance capital expenditures.
The City’s highly developed economy provides for a diversified tax base. Per-capita GRP in Saint Petersburg is consistently higher than the national average by 30–40%. Tax revenue is highly diversified in terms of sectors: according to ACRA, the average estimate of the maximum share of one industry in the City’s tax revenues in 2016–2019 did not exceed 16%. Unemployment is consistently low and did not exceed 2% in the aforementioned period (2016–2019). In 2020, unemployment grew in Saint Petersburg and reached 3.6% in June–August amid national average unemployment of 6.3%. The average monthly wage was five times higher than the City’s subsistence wage in 2019.
1 Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.
Key assumptions
- Decrease in the City’s TNTR by 9% in 2020 compared with 2019, followed by 4% growth in 2021;
- Execution of the 2020 budget with a deficit of no more than 19% of TNTR;
- Lower expenditures should actual income decline compared to target income;
- Maintaining a conservative debt policy;
- Maintaining high budget liquidity.
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:
- Growth of debt load to higher than 30% of the City’s operating income;
- Significant fall in available liquidity.
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).
Saint Petersburg, 35003 (ISIN RU000A102A15); maturity date: April 13, 2027, issue volume: RUB 30 bln — AAA(RU).
Rationale. In ACRA’s opinion, the bonds of Saint Petersburg are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of Saint Petersburg.
Regulatory disclosure
The credit ratings have been assigned to Saint Petersburg and the bonds (ISIN RU000A0ZYHX8, RU000A0ZYKJ1, RU000A102A15) 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 the Analytical Credit Rating Agency within the Scope of Its Rating Activities. To assign credit ratings to the above bond issues, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale for the Russian Federation was also applied.
The credit ratings of Saint Petersburg and the bonds (ISIN RU000A0ZYHX8, RU000A0ZYKJ1, RU000A102A15) issued by Saint Petersburg were published by ACRA for the first time on June 27, 2017, December 4, 2017, December 12, 2017, and October 22, 2020, respectively. The credit ratings of Saint Petersburg and the bonds (RU000A0ZYHX8, RU000A0ZYKJ1, RU000A102A15) issued by Saint Petersburg 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 the data provided by Saint Petersburg, 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 Saint Petersburg participated in their assignment.
No material discrepancies between the provided data and the data officially disclosed by Saint Petersburg in its financial statements have been discovered.
ACRA provided no additional services to the Government of Saint Petersburg. No conflicts of interest were discovered in the course of credit rating assignment.
