The credit rating of Saint Petersburg (the City) 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. 3.5% of the Russian population live there, and the local GRP is about 5% of the aggregate GRP of the Russian Federation.
Key rating assessment factors
Balanced budget structure and sufficient budgetary discipline. The City budget is characterized by a high self-sufficiency as, in 2015–2018, the average revenues amounted to 98%. In that period, the volume of mandatory expenditures was about 72%, while the operational balance was 18% of the regular revenues. Budget expenditures for transport, utility services, education and healthcare have grown in 2017, and they have been financed mostly through bond issues. This year, growing expenditures will also be financed through more borrowings.
Low current and projected debt load. At the end-2017, the City’s debt load amounted to 0.44x of the operational balance, and it is expected to reach 1.02x by late 2018 and 1.3–1.5x by late 2020. Such debt load corresponds to low and moderate risks. By late 2018, the debt will include long-term bonds only (currently, the share of budget loans is insignificant, and the City does not participate in their restructuring), therefore, refinancing risks are absent in the mid-term. Debt service costs are not burdensome.
Excessive budget liquidity. In 2017, the interest revenues of the City shrinked almost two-fold against the level of 2014–2016, as the deficit of 2016 and a part of the deficit of 2017 was financed by balance funds. However, this does not affect the maximum assessment of the City's budget liquidity, taking into account that the start-of-month balances have been consistently higher than monthly expenditures.
Key assumptions
- The City will control the growth rate of mandatory expenses;
- The budget capex will remain at 20%;
- High budget liquidity;
- The economic growth rate will remain sustainably higher than the national average.
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 substantial growth of debt load against the operational budget balance;
- A decelerating economic growth, accompanied by lower tax revenues and stable budget expenditures.
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 04, 2026,
issue volume: RUB 25 bln — AAA(RU).
Credit rating rationale. ACRA is of the opinion that the above bonds issued by Saint Petersburg are senior unsecured debt instruments, which credit ratings are equal to that of Saint Petersburg.
Regulatory disclosure
The credit ratings were assigned to Saint Petersburg and bonds (ISIN RU000A0ZYHX8, ISIN 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 assigning credit ratings to the above bond issues, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also applied.
The credits rating assigned to Saint Petersburg and the bonds (ISIN RU000A0ZYHX8, ISIN RU000A0ZYKJ1) issued by Saint Petersburg were first published by ACRA on June 27, 2017, December 04, 2017 and December 12, 2017, respectively. The credits ratings assigned to Saint Petersburg and the bonds (ISIN RU000A0ZYHX8, ISIN RU000A0ZYKJ1) issued by Saint Petersburg are expected to be revised within 182 days following the rating action date (June 21, 2018) as per the 2018 Calendar of planned sovereign credit rating revisions and publications.
The credit ratings are based on the data provided by Saint Petersburg City Government, information from publicly available sources (the RF 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.
No material discrepancies between the provided data and the data officially disclosed by Saint Petersburg in its financial reports 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.
