The outlook for the credit rating of the Krasnoyarsk Krai (hereinafter, the Region) has been changed to positive due to the Agency’s expectations that the operational efficiency of the budget will improve along with the share of commercial debt in the Region’s debt portfolio falling by the end of this year.
The credit rating of the Region is based on its low debt load, insignificant refinancing risk, balanced budget indicators, and considerable accumulated liquidity. The rating is also supported by high economic development indicators and, consequently, the strong economic profile of the Region. The rating is constrained by the high dependence of budget revenues on the mining and metalworking sectors of the regional economy.
The Region is part of the Siberian Federal District and has a population of almost 2.9 mln. Its largest cities are Krasnoyarsk, Norilsk, and Achinsk. The Region is rich in metal ores and fuel and energy resources. The Region’s gross regional product (GRP) amounted to RUB 3.1 tln in 2021. According to the Region’s estimates, 2022 GRP will amount to around RUB 3.5 tln.
KEY ASSESSMENT FACTORS
Balanced budget indicators and significant need to use liquidity. The averaged1 ratio of the current account balance to current revenues is expected to be moderate — according to ACRA’s projections it will be just below 10% in 2020–2024. The current account balance for 2023 is expected to be positive, which indicates that current revenues are sufficient to finance all current expenditures and a significant share of capital expenditures. In the Agency’s opinion, the operational efficiency of the budget may grow if the budget is executed with a deficit that is considerably lower than the projected one in 2023.
ACRA assesses the share of capital expenditures in the Region’s total expenditures as moderately high — the averaged value of this indicator will be around 18% for 2020–2024. Almost two-thirds of capital expenditures are covered by the Region’s internal revenues.
The averaged share of tax and non-tax revenues (TNTR) in the Region’s revenues (excluding subventions) for the same period will be just over 88% according to ACRA’s forecast.
ACRA expects the averaged ratio of the modified budget deficit to current revenues to equal around -6% in 2020–2024, while the budget’s need to use accumulated funds for capital purposes is assessed as moderately high. The Agency made a positive adjustment to this indicator in view of the expected low debt load of the Region this year.
The Region’s budget revenues declined by 6% year-on-year in 2022, and TNTR fell by 6%, which was the result of smaller corporate tax revenues (which declined by more than 28% compared to 2021). At the same time, growth of proceeds from personal income tax (+21%) and mineral extraction tax (+21%), as well significant income (4% of TNTR) received by depositing budget funds, partly compensated for the fall in corporate tax revenues. Transfers declined by 4% in 2022 vs. 2021. Budget expenditures increased by 22% year-on-year, while capital expenditures almost doubled. The Region’s current expenditures also recorded significant growth (14% year-on-year). The budget deficit at the end of the year was just over 1% of TNTR and was covered mainly using funds in the Region’s accounts.
The current version of the Region’s budget law for 2023–2025 assumes that the budget will be executed in 2023 with a significant deficit — 20% of the target TNTR. It is expected that the budget’s income may decline by 6% compared to 2022, while the target volume of transfers from the federal budget may decline by 21%. TNTR will fall by around 3%, including a 3% decline in corporate income tax. The expenditure side of the budget will grow by 9% year-on-year. The deficit for 2023 is planned to be covered by previously accumulated liquidity.
According to the Agency’s forecasts, the Region’s budget revenues may decline to a lesser extent than indicated in the current version of the budget law since the dynamics of income tax revenues may turn out to be positive relative to last year. Should other budget parameters remain unchanged, the budget deficit in 2023 will be about 13% of TNTR.
1 Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regions and Municipal Entities of the Russian Federation.
Funds in accounts are sufficient to finance this year’s expected budget deficit. At the end of 2022, funds held in the Region’s accounts declined by 19% due to the financing of the budget deficit. However, accumulated liquidity, in ACRA’s opinion, should be sufficient to cover the expected budget deficit in 2023 (furthermore, most of these accumulated funds may be used). Since the start of 2023, the Region’s account balances (excluding funds of autonomous and budgetary institutions) on average have covered monthly budget expenditures by more than 3x.
ACRA expects that the liquidity ratio of the Region’s budget for 2023 (calculated excluding funds of autonomous and budgetary institutions) may exceed 140%.
The budget had no overdue payables as of June 1, 2023. The Region places funds in deposits, which allows it to generate interest income. The Region has not received a loan from the Federal Treasury Department so far in 2023, but an agreement regarding this was signed. There were no open credit lines as of June 1, 2023.
Insignificant debt refinancing risks and a low debt load. As of January 1, 2023, the Region’s debt amounted to RUB 50.6 bln; its size changed year-on-year due to the Region repaying bonds and receiving budget loans. The share of bonds in the Region’s debt portfolio declined to 57%, while the share of budget loans increased to 43%. Other debt obligations continue to account for less than 1% of debt. According to the debt repayment schedule, the largest repayments are scheduled for 2023, when the Region needs to repay or refinance 30% of its debt. In 2024, 27% of debt must be repaid. At the same time, the Region’s bonds account for most of the medium-term repayments. ACRA notes that in the upcoming years, repayments will be fully covered by funds held in the Region’s accounts.
As of July 1, 2023, the volume of the Region’s debt and the schedule for its repayment had not changed significantly. The Region has received RUB 2.1 bln (to be repaid by 2038) in order to carry out infrastructure projects, and has redeemed RUB 1.2 bln in government bonds. The largest volume of repayments are still due in 2023 and 2024 (28% and 27%, respectively).
The Region’s ratio of debt to current revenues amounted to 15% in 2022, which corresponds to a low debt load. According to the Agency’s forecast, this indicator will amount to 13% by the end of this year.
Interest expenses are not burdensome for the Region, as interest expenses averaged for 2020–2024 do not exceed 2% of total budget expenses (excluding subventions). The ratio of the Region’s averaged debt to GRP is around 2%.
The Region participates in the Infrastructure Budget Loans program. There is a possibility that up to RUB 90 bln worth of these loans may be granted to the Region, which may change the level of the Region’s debt load in the long term. Mitigating factors will be the long repayment period and low interest rate on these loans.
The economy’s high development indicators are largely dependent on the metals sector. The Region’s economy depends heavily on the metal extraction and processing sector, which in separate years has accounted for up to 50% of the tax proceeds for the Region’s budget. According to ACRA’s calculations, the averaged share of the Region’s tax proceeds from the metals sector for 2019–2022 exceeded 40%. A considerable share (around 16%) came from activities for the extraction of fuel and energy minerals. The largest companies operating in the Region are MMC Norilsk Nickel PJSC, Polyus Krasnoyarsk JSC, RUSAL Krasnoyarsk JSC, etc.
The Region’s GRP per capita averaged for 2018–2021 stood at 136% of the national average. The ratio of averaged wages to the regional subsistence minimum exceeded 350% in 2019−2022. In 2022, unemployment in the Region declined to 2.7%, and the averaged unemployment rate calculated according to the ILO’s methodology was 3.5%.
KEY ASSUMPTIONS
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Positive dynamics of income tax revenues in 2023 year-on-year;
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Execution of the spending part of the budget in 2023 according to the current version of the Region’s budget law;
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Current budget expenditures growing in 2024 in accordance with expected inflation amid a simultaneous reduction of capital expenditures;
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Using most of the accumulated liquidity to cover the projected budget deficit in 2023.
POTENTIAL OUTLOOK OR RATING CHANGE FACTORS
The Positive outlook assumes that the rating will highly likely be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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Growth of the current account balance of the Region’s budget coupled with a simultaneous increase in the share of internal revenues in total revenues, excluding subventions;
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Consistently lower concentration of tax revenues on the metals sector.
A negative rating action may be prompted by:
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Ratio of debt to current revenues exceeding 30% due to raising commercial debt;
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Significant increase of the budget’s need to use accumulated liquidity due to the higher volume of the projected budget deficit.
ISSUE RATINGS
Krasnoyarsk Krai, 35016 (ISIN RU000A0ZZM87), maturity date: September 12, 2025, issue volume: RUB 12 bln — AА(RU).
Krasnoyarsk Krai, 35015 (ISIN RU000A0ZZC48), maturity date: June 26, 2025, issue volume: RUB 12 bln — AА(RU).
Krasnoyarsk Krai, 35014 (ISIN RU000A0ZYFB8), maturity date: October 31, 2024, issue volume: RUB 7.8 bln — AА(RU).
Krasnoyarsk Krai, 34013 (ISIN RU000A0ZYCM2), maturity date: October 3, 2024, issue volume: RUB 10.0 bln — AА(RU).
Krasnoyarsk Krai, 34012 (ISIN RU000A0JWXF0), maturity date: October 25, 2023, issue volume: RUB 18.231 bln — AА(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 the Krasnoyarsk Krai.
REGULATORY DISCLOSURE
The credit ratings have been assigned to the Krasnoyarsk Krai and the bond issues of the Krasnoyarsk Krai (ISIN RU000A0ZZM87, RU000A0ZZC48, RU000A0ZYFB8, RU000A0ZYCM2, RU000A0JWXF0) 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 Financial Instruments under the National Scale for the Russian Federation was also applied to assign credit ratings to the above issues.
The credit rating of the Krasnoyarsk Krai and the credit ratings of the bond issues of 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 and the credit ratings of the bond issues of 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 sovereign credit rating revisions and publications.
The credit ratings were assigned based on data provided by the Government of the Krasnoyarsk Krai, 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 Krasnoyarsk Krai participated in the rating process.
In assigning the credit ratings, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to the Government of the Krasnoyarsk Krai. No conflicts of interest were discovered in the course of credit rating assignment.
