The credit rating of the Krasnoyarsk Krai (hereinafter, the Krai, or the Region) is driven by growing operating balance, declining debt load and extended debt repayment schedule. The rating is under pressure of the Region’s dependence on the cyclical nature of market environment on the key goods and services manufactured and rendered in the Region.
The Region is part of the Siberian Federal District. The Region’s population is 2.9 mln people (1.95% of Russia’s population). The Region's GRP is about 2.5% of the total GRP of Russian regions. The regional economy is undergoing structural changes: new oil and gas fields are put into operation and a non-ferrous smelter is about to be temporary closed.
Key rating assessment factors
Medium debt load and smooth debt repayment schedule. The debt load (i.e. the ratio of direct debt to operating balance) of the Region has been continuing to decline along with the growth in the operating balance. According to ACRA forecast, the debt load will not exceed 2.3 in 2018 and 2019. As of September 1, 2018, about two thirds of the current debt of the Region included bonds, which allows the Region to maintain a smooth debt repayment schedule: about 15% of the debt will mature each year in 2019–2021. As a result, at the end of 2018, the ratio of the operating balance net of interest expenses to debt repayment will exceed 2x. Refinancing risk is assessed as low. The Region's interest expenses will be 13% of the operating balance in 2018.
Operating balance is growing amid stable capital expenditures. The operating balance of the Region is growing, driven by the average annual regular revenues significantly outrunning mandatory expenses: 12% versus 7% in 2014–2018. The closure of a factory within one holding and the change of a principal member of a consolidated group of taxpayers (CGT) of another holding provoked a decrease in budget revenues from income tax collected in the metals sector (by RUB 10.8 billion y-o-y in 1H2018). The decline in the metal ore mining amounted to RUB 4 billion. The fall is compensated by the growth of revenues from such sectors as oil and gas production and real estate transactions. In 1H2018, the revenues from the oil and gas production sector increased threefold y-o-y (by RUB 7.2 billion). In the event that the crude oil price in rubles decreases, the projected growth in oil production1 will have a positive impact on the regional fiscal revenues. The aforementioned change of a principal member of a CGS contributed to the growth in revenues from the real estate sector (by RUB 13.8 billion). In the period from 2018 to 2019, the operating balance of the Region will be about 24–26%. The share of capital expenditures in the Region's budget is stable, 14–15% of the total expenses on average, which is assessed by ACRA as moderate.
1 The industry program "Development of extraction and refinery of fuel and energy minerals in the territory of Krasnoyarsk Region for 2018–2020" was approved by Resolution No. 665-р of the Government of Krasnoyarsk Region dated October 5, 2017.
- Ruble oil price volatility will be compensated by higher oil production rates;
- In 2019, the amount of inter-budget transfers will remain the same as in 2018;
- The Region will stick to a balanced debt policy.
Potential outlook or rating change factors
The Positive outlook assumes that the credit rating will most likely change within the 12 to 18-month horizon.
A positive rating action may be prompted by:
- The operating balance continuing to grow;
- Capital expenditures growing above 15% of the total expenditures amid stable ratio of debt to operating balance;
- Higher economic indicators.
A negative rating action may be prompted by:
- Lower tax revenues; operating balance declining below 13%;
- Debt load (debt to operating balance ratio) growing above 3x.
Krasnoyarsk Krai, 35016 (ISIN RU000A0ZZM87), maturity date: September 12, 2025, issue volume: RUB 12 bln — А(RU).
Krasnoyarsk Krai, 35015 (ISIN RU000A0ZZC48), maturity date: June 26, 2025, issue volume: RUB 12 bln — А(RU).
Krasnoyarsk Krai, 35014 (RU000A0ZYFB8), maturity date: October 31, 2024, issue volume: RUB 7.8 bln — А(RU).
Krasnoyarsk Krai, 34013 (RU000A0ZYCM2), maturity date: October 3, 2024, issue volume: RUB 10 bln — А(RU).
Krasnoyarsk Krai, 34012 (RU000A0JWXF0), maturity date: October 25, 2023, issue volume: RUB 18.231 bln — А(RU).
Krasnoyarsk Krai, 34011 (RU000A0JVWM0), maturity date: October 29, 2019, issue volume: RUB 4.25 bln — А(RU).
Krasnoyarsk Krai, 34010, (RU000A0JVS10), maturity date: September 10, 2019, issue volume: RUB 12.5 bln — А(RU).
Rationale. In ACRA’s opinion, the above bonds issued by the Krasnoyarsk Krai are senior unsecured debt instruments, and their credit rating is equal to the rating assigned to the Krasnoyarsk Krai.
The credit ratings have been assigned to the Krasnoyarsk Krai and to bonds issued by the Krasnoyarsk Krai (ISIN RU000A0ZZM87, ISIN RU000A0ZZC48, ISIN RU000A0ZYFB8, ISIN RU000A0ZYCM2, ISIN RU000A0JWXF0, ISIN RU000A0JVWM0, ISIN RU000A0JVS10) under the national scale for the Russian Federation based on the Methodology for Credit Rating Assignment to Regional and Municipal Authorities of the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities. In the process of credit rating assignment to the above issues, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also used.
For the first time, the credit rating of the Krasnoyarsk Krai was published by ACRA on October 9, 2017, and the credit ratings of government securities of the Krasnoyarsk Krai (ISIN RU000A0ZYCM2, ISIN RU000A0JWXF0, ISIN RU000A0JVWM0, ISIN RU000A0JVS10) were published on October 10, 2017, the credit rating of the government security of the Krasnoyarsk Krai (ISIN RU000A0ZYFB8) on November 7, 2017, the credit rating of the government security of the Krasnoyarsk Krai (ISIN RU000A0ZZC48) on July 02, 2018, and the credit rating of the government security of the Krasnoyarsk Krai (ISIN RU000A0ZZM87) on September 21, 2018.
The credit rating of the Krasnoyarsk Krai and its outlook as well as the credit ratings of government securities issues of the Krasnoyarsk Krai (ISIN RU000A0ZZM87, ISIN RU000A0ZZC48, ISIN RU000A0ZYFB8, ISIN RU000A0ZYCM2, ISIN RU000A0JWXF0, ISIN RU000A0JVWM0, ISIN RU000A0JVS10) are expected to be revised within 182 days after the rating action date (October 04, 2018) in compliance with the Calendar of planned sovereign credit rating revisions and publications.
The credit ratings were assigned based on the data provided by the Krasnoyarsk Krai Government, 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 the Krasnoyarsk Krai Government participated in their assignment.
No material discrepancies between the data provided and the data officially disclosed by the Krasnoyarsk Krai in its financial report have been discovered.
ACRA provided no additional services to the Krasnoyarsk Krai Administration. No conflicts of interest were discovered in the course of credit rating assignment.