The credit rating of the Moscow Region (hereinafter, the Region) is based on the Region’s highly developed economy, stable budget indicators, moderately low debt load, and high budget liquidity.
The Moscow Region is a large, industrially developed region whose contribution to Russia’s economy is significant (RUB 5.1 tln in 2019, or 5.4% of Russia’s total GRP). The Region ranks second in the country by population (5% of the total).
KEY ASSESSMENT FACTORS
Moderately low debt load and high budget liquidity. At the end of 2021, the ratio of the Region's debt to current revenues (as per ACRA's methodology) amounted to 38%. According to ACRA’s assessments, if the Region executes its budget with the deficit envisaged by the budget law, by the end of 2022 its debt may amount to 42% of current revenues. These indicators correspond to a moderately low debt load. The ratio of averaged1 debt to GRP in 2018–2022 should amount to about 4%.
As of January 1, 2022, the Region’s debt included bonds (49%) and budget and bank loans (40% and 11%, respectively). The ratio of averaged interest expenses to total budget expenditures, excluding subventions, in 2018−2022 should be 2%, which indicates that interest expenses are not burdensome for the regional budget. As of the above date, 35% of the Region's debt obligations were to be repaid/refinanced in 2022–2023.
Liquidity available to the Region is sufficient to cover its expenditures, including interest payments. As of January 1, 2022, the Region’s account balances exceeded monthly average budget expenditures for 2021 by 1.4 times. The Region regularly deposits temporarily free budget funds in banks. The liquidity ratio (as per ACRA's methodology) may amount to about 76% in 2022.
Self-sufficient budget with a flexible spending structure. The Region’s internal revenues are consistently high. The averaged ratio of tax and non-tax revenues (TNTR) to budget revenues (excluding subventions) should equal about 89% for 2018−2022. The averaged share of capital expenditures in the Region’s total expenditures, excluding subventions, should equal 18% for this period. According to ACRA’s methodology, the averaged ratio of the balance of current operations to current revenues should equal 10% for 2018−2022, while the ratio of the average modified budget deficit to current revenues should be -5%. This indicates that the Region’s current revenues are sufficient to cover its current expenditures, as well as the need to borrow funds to finance capital expenditures.
In 2021, regional budget revenues increased by 25%, while expenditures decreased by 1%. The budget surplus in 2021 was 3% of TNTR. The regional budget law provides for the 2022 budget deficit of 7% of TNTR, which is planned to be covered by issuing bonds and attracting bank debt. In the event of an unfavorable situation on the debt market, the Region may also utilize account balances accumulated in previous years.
The Region enjoys a high level of economic diversification and a favorable geographic location. The dominant industry is the food industry (about 25% of industrial production), which is not related to pro-cyclical industries. The regional budget’s tax revenues do not depend on one large taxpayer or a group of large taxpayers. Historically, the maximum share of a single taxpayer in the budget’s tax revenues is less than 4%. The proximity to Moscow guarantees a stable market for products manufactured in the Region and demand for labor resources. This ensures a low unemployment rate (about 60% of the national average in 2016–2020) and relatively high average wages compared to the subsistence minimum in the Region. In 2020, the average wage exceeded the subsistence minimum by 3.9 times. The Region’s GRP is growing faster than the Russian average: in 2020, it grew by 6.2% against the national average of 1.6%. The growth rate of the Region’s industrial production in 2016–2020 was significantly ahead of the national average (about 10% per year with the national average at no higher than 4%).
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
KEY ASSUMPTIONS
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Execution of the budget in accordance with the budget law;
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Maintaining high budget liquidity.
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:
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Improved debt repayment schedule (lower refinancing risk for a significant share of debt subject to repayment in the next two years);
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Execution of the budget in 2022 with a deficit of no more than 3% of TNTR;
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Debt load declining below 30% of current revenues.
A negative rating action may be prompted by:
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Growth in current budget expenses without a corresponding increase in revenues;
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Significant decrease in budget liquidity;
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Increased debt load above 55% of current revenues;
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Significant reduction in the average maturity of market debt.
ISSUE RATINGS
The Moscow Region, 35010 (ISIN RU000A0JX0B9), maturity date: November 21, 2023, issue volume: RUB 25 bln — AA+(RU).
The Moscow Region, 34011 (ISIN RU000A0ZYML3), maturity date: December 22, 2022, issue volume: RUB 25 bln — AA+(RU).
The Moscow Region, 34012 (ISIN RU000A100XP4), maturity date: October 8, 2024, issue volume: RUB 25 bln — AA+(RU).
The Moscow Region, 34013 (ISIN RU000A101988), maturity date: December 20, 2024, issue volume: RUB 14 bln — АА+(RU).
The Moscow Region, 34014 (ISIN RU000A101WL3), maturity date: July 8, 2025, issue volume: RUB 28 bln — АА+(RU).
The Moscow Region, 35015 (ISIN RU000A102CR0), maturity date: November 10, 2026, issue volume: RUB 30 bln — АА+(RU).
The Moscow Region, 35016 (ISIN RU000A102G35), maturity date: November 30, 2027, issue volume: RUB 30 bln — АА+(RU).
Rationale. In ACRA’s opinion, the bonds of the Moscow Region are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of the Moscow Region.
REGULATORY DISCLOSURE
The credit ratings have been assigned to the Moscow Region and the bonds (ISIN RU000A0JX0B9, RU000A0ZYML3, RU000A100XP4, RU000A101988, RU000A101WL3, RU000A102CR0, RU000A102G35) issued by the Moscow 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 the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities. The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments on the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit ratings of the Moscow Region and the bonds (ISIN RU000A0JX0B9, RU000A0ZYML3, RU000A100XP4, RU000A101988, RU000A101WL3, RU000A102CR0, RU000A102G35) issued by the Moscow Region were published by ACRA for the first time on December 12, 2016, December 12, 2016, December 21, 2017, October 9, 2019, December 23, 2019, July 8, 2020, November 12, 2020, and December 2, 2020, respectively. The credit rating of the Moscow Region and its outlook and the credit ratings of the bonds (ISIN RU000A0JX0B9, RU000A0ZYML3, RU000A100XP4, RU000A101988, RU000A101WL3, RU000A102CR0, RU000A102G35) issued by the Moscow 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 were assigned based on data provided by the Moscow Region, information from publicly available sources (the Ministry of Finance, the Federal State Statistics Service, and the Federal Tax Service), and ACRA’s own databases. The credit ratings are solicited, and the Government of the Moscow 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 Moscow Region. No conflicts of interest were identified in the course of credit rating assignment.
