The credit rating of the Samara Region (hereinafter, the Region) reflects the Region’s moderately low debt load, smooth repayment schedule, and stable and high-liquid budget. The rating is constrained by the economic indicators that are somewhat below the national average.

The Region is located in the Volga Federal District, and it ranked 11th in Russia in gross regional product (GRP) in 2019. The Region’s population is 3.2 mln people.

KEY ASSESSMENT FACTORS

Moderately low debt load with a balanced debt structure in terms of maturities. According to the Region's budget law, the ratio of debt to current revenues may grow from 26% to 32% by the year-end 2021 since new borrowings are required to cover the deficit. By the end of 2022, this ratio may amount to about 36%. This indicates a moderately low debt load. At the same time, current budget execution dynamics give grounds to expect that by year-end 2021, the above ratio will be below 30% (excluding infrastructure budget loans that the Region possibly may have to borrow). As of September 1, 2021, the Region’s debt included bonds (63%) and budget loans (37%), therefore, the annual amount of repayment (refinancing) should not exceed 17% of the current debt (no more than RUB 8 bln). The averaged1 interest expenses in 2018–2022 should be about 2% of total budget expenditures excluding subventions, which corresponds to a low level of risk and indicates that these expenditures are not burdensome for the Region's budget.


1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.

High level of budget liquidity. The Region regularly deposits its temporarily free cash with banks. As of September 1, 2021, the amount of deposits held with banks was more than 2.6 times higher than the average monthly budget expenditures for seven months of 2021. This arrangement allows the Region to earn more and partially offset debt-servicing costs.

Moderately high degree of budget self-sufficiency and flexible budget expenditures. The averaged share of tax and non-tax revenues (TNTR) in the Region's total revenues excluding subventions in 2018–2022 should be 78%. As per ACRA’s methodology, the averaged ratio of the balance of current operations to current revenue for this period should be 8%, with the ratio of averaged modified budget deficit to averaged current revenue at -3%. These indicators demonstrate that the Region’s current revenue can cover current expenditures and that there is a need in borrowed funds to finance capital expenditures. Averaged capital expenditures in 2018–2022 should amount to 21% of total budget expenditures excluding subventions.

The Region's budget law for 2021 provides for a budget deficit of about 15% of TNTR. The deficit is planned to be covered by both funds accumulated in previous years and additional borrowings. According to ACRA's estimates, by the end of 2021, the actual budget deficit may turn out to be significantly lower than the planned level.

Over the seven months of 2021, the Region's total revenues increased by 43% y-o-y, TNTR — by 32% y-o-y, expenditures — by 28% y-o-y. The main contributor to the increase in regional budget revenues was the share of income tax revenues (+66%). The intermediate surplus of the regional budget for the first seven months of 2021 amounted to RUB 29 bln, which is almost three times more than the amount observed for the same period last year.

Diversified economy with developed industry. The Region’s economy is based on the manufacturing and oil production sectors (20% and 19% of GRP in 2019, respectively). The Region's manufacturing sector is dominated by vehicle manufacturing (41.5% of shipped manufacturing goods in 2019) and chemicals (17.0% of shipped goods). In 2016–2019, the Region’s averaged GRP per capita was 83% of the national average. In 2020, the unemployment rate in the Region was 4.5%, while the average monthly salary exceeded the regional subsistence minimum by more than three times.

KEY ASSUMPTIONS

  • Executing the regional budget as stipulated by the budget law;

  • Maintaining conservative debt policies;

  • Maintaining a high level of budget liquidity.

POTENTIAL OUTLOOK OR RATING CHANGE FACTORS

The Stable outlook assumes that the credit rating will most likely remain unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Reduced lag behind the national average economic indicators;

  • Achieving a sustainable debt to current revenues ratio below 30%.

A negative rating action may be prompted by:

  • A growth in current budget expenditures not supported by a corresponding increase in budget revenues;

  • Substantial decrease in regional budget liquidity;

  • Increase in the debt load above 45% of current revenues.

ISSUE RATINGS

Samara Region Government Bond, 35013 (ISIN RU000A0JXT41); maturity date: May 31, 2024, issue volume: RUB 10.0 bln — AA(RU).

Samara Region Government Bond, 35012 (ISIN RU000A0JWM56); maturity date: June 21, 2024, issue volume: RUB 10.0 bln — AA(RU).

Samara Region Government Bond, 35014 (ISIN RU000A0ZZ9P8); maturity date: June 04, 2026, issue volume: RUB 8.0 bln — AA(RU).

Samara Region Government Bond, 35015 (ISIN RU000A1020L5); maturity date: August 04, 2026, issue volume: RUB 5.0 bln — AA(RU).

Rationale. In ACRA’s opinion, the bonds listed above are senior unsecured debt instruments, the credit ratings of which are equal to the credit rating of the Samara Region.

REGULATORY DISCLOSURE

The credit ratings have been assigned to the Samara Region and bonds (RU000A0JXT41, RU000A0JWM56, RU000A0ZZ9P8, RU000A1020L5) issued by the Samara Region under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation and 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, ACRA also applied the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation.

The credit ratings assigned to the Samara Region and bonds (RU000A0JXT41, RU000A0JWM56, RU000A0ZZ9P8, RU000A1020L5) issued by the Samara Region were first published by ACRA on December 28, 2016, June 5, 2017, July 7, 2017, June 6, 2018, and August 3, 2020, respectively. The credit ratings assigned to the Samara Region and bonds (RU000A0JXT41, RU000A0JWM56, RU000A0ZZ9P8, RU000A1020L5) issued by the Samara Region are expected to be revised within 182 days following the publication date of this press release as per the Calendar of sovereign credit rating revisions and publications.

The credit ratings are based on the data provided by the Government of the Samara Region, information from publicly available sources (Ministry of Finance, Federal State Statistics Service, and Federal Tax Service), as well as ACRA’s own databases. The credit ratings are solicited, and the Government of the Samara Region participated in their assignment.

In assigning the credit ratings, ACRA used only information, the quality and reliability of which was, in ACRA's opinion, appropriate and sufficient to apply the methodologies.

ACRA provided no additional services to the Government of the Samara Region. No conflicts of interest were discovered in the course of credit rating assignment.


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