The credit rating of Saint Petersburg rests on the well-developed regional economy, balanced budget structure, sufficient budgetary discipline, low current and projected debt load, and excessive budget liquidity.
St. Petersburg is a city of federal importance located in the North-Western Federal District and bordering the Leningrad Region. Saint Petersburg is ranked 4th in terms of population, as 5.2 million people or 3.5% of the Russian population live in the city. The 2016 GRP of the city amounted to RUB 3.3 trillion, or about 5% of the aggregate GRP of the Russian Federation.
Key rating assessment factors
Well-developed regional economy forms a diversified tax base for the budget. GRP per capita is consistently 30-40% higher than the national average GRP. ACRA expects that, in the foreseeable future, the GRP growth rate will slightly exceed the Russian average rate. About 60% of annual GRP is generated by sectors "Trade and Repair," "Services" and "Processing Industries" in approximately equal proportion, which is estimated by ACRA as a good diversification of the regional economy.
Balanced budget structure and sufficient budgetary discipline. The city budget is characterized by a high self-sufficiency (in 2014-2017, the average own income amounted to 97%). In that period, the volume of mandatory expenditures was about 72%, while the city’s operational balance was 20% of the regular income, which is estimated by ACRA as a sufficient level of budgetary discipline. The city budget may be subject to pressure due to increased mandatory expenditures for the transport sector and increased subsidies to educational institutions. ACRA estimates that in 2018-2019, the volume of mandatory expenditures will grow by 6-7% annually. The increase in budget expenditures anticipated in 2018–2019 may reduce the assessment of budgetary discipline to ‘moderate.’
Low current and projected debt load. At the end-2017, the city’s debt load is estimated to reach about 1.38x at the end-2017. The debt includes mostly long-term bonds. Provided that the debt will grow in line with the 2018-2020 budget, the debt to operating balance ratio will be about 2.3x at the end-2020. At the same time, the esmimated debt load will correspond to a low risk because debt service costs will not be burdensome in the forecast period, while the nd debt repayment schedule excludes the risk of refinancing.
Excessive budget liquidity. In 2014-2016, the start-of-month balances (including deposits) were consistently higher than monthly expenditures, thus creating a significant reserve of liquidity. The City Government has regularly conducted budget accounts tenders, earning an annual average of RUB 5.1 billion.
Although the budget liquidity balance went negative from time to time in 2017 and ACRA expects the interest revenues to decline in 2017, the current budget liquidity of saint Petersburg is assessed as excessive. ACRA also expects that the liquidity will not go down below the ‘high’ level, irrespective of the need to finance a budget deficit in the forecast period.
Key assumptions
- The economic growth rate will remain sustainably higher than that the national average;
- The budget spendings will remain stable, with CapEx at 20%;
- 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:
- A decelerating economic growth;
- Debt load increase to over 2.6x against the operating balance of the budget.
Issue ratings
ACRA assigns AAA(RU) to:
Saint Petersburg, 35001 (ISIN RU000A0ZYHX8), maturity date: May 28, 2025, issue volume:
RUB 30 bln.
Saint Petersburg, 35002 (ISIN RU000A0ZYKJ1), maturity date: December 04, 2026, issue volume: RUB 25 bln.
Credit rating rationale. ACRA is of the opinion that the above bonds issued by Saint Petersburg is a senior unsecured debt instruments, which credit ratings are equal to that of Saint Petersburg.
Regulatory disclosure
The credit ratings have been assigned to Saint Petersburg and bonds (ISIN RU000A0ZYHX8, RU000A0ZYKJ1) 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 Analytical Credit Rating Agency within the Scope of Its Rating Activities. In the course of assigning a credit rating to the bond issues above, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation has also been used.
The credit rating assigned to Saint Petersburg was first published by ACRA on June 27, 2017. The credit rating of Saint Petersburg and its outlook are expected to be revised within 182 days following the rating action date (December 21, 2017) as per the 2017-2018 Calendar of planned sovereign credit rating revisions and publications.
The credit rating assigned to RU000A0ZYHX8 and RU000A0ZYKJ1 government bonds issued by Saint Petersburg was first published by ACRA on December 04, 2017 and December 12, 2017, respectively. The credit rating is expected to be revised within 182 days following the rating action date (December 21, 2017) as per the 2017-2018 Calendar of planned sovereign credit rating revisions and publications.
The assigned and affirmed credit ratings are 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 Saint Petersburg City Government participated in their assignment and affirmation.
No material discrepancies between the provided data and the data officially disclosed by Saint Petersburg in its financial report have been discovered.
ACRA provided no additional services to Saint Petersburg City Government. No conflicts of interest were discovered in the course of credit rating assignment and affirmation.
