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ACRA affirms AAA(RU) to Yamalo-Nenets Autonomous Okrug, outlook Stable, and AAA(RU) to bond issues

The credit rating of the Yamalo-Nenets Autonomous Okrug (hereinafter, YaNAO or the Region) is based on its minimal debt load, high self-sufficiency and high liquidity of the budget, as well as high indicators of the regional economic development.

YaNAO is located in the Urals Federal District. The Region has the status of the Far North territory with more than half of its area lying beyond the Arctic Circle. In 2017, the Region's GRP amounted to 3.3% of the total GRP of all administrative entities of Russia, and the Region's population was about 0.4% of the Russian population.

Key rating assessment factors

The Region's debt load indicates minimal risk. The debt to operating balance ratio will total nearly 22% by the end of 2019 and may go down to 10% by late 2020, which indicates that the debt load is minimal. In 2019–2022, interest expenses are expected to be insignificant. The refinancing risk is assessed as minimal for the above period. As of November 1, 2019, 78% of the Region’s debt portfolio was represented by bonds due until 2024 (RUB 12.98 bln), while state guarantees (RUB 3.55 bln) comprised the remaining 22%. The Region has started to place temporarily free budget funds to bank deposit accounts as late as in 2019, although it was able to do so before 2019. As of November 1, 2019, the Region’s budget account and bank account balances more than seven times exceeded its aggregate debt and were almost nine times higher than the average monthly budget expenditures in January–September 2019. ACRA's stress scenario, which assumes a 25% fall in the tax and non-tax revenues (TNTR) in 2020 against the level contemplated by the Region's budget law for 2020 and the planned period of 2021–2022, showed that the debt load will remain low (the ratio of debt to operating balance may amount to about 50% in 2020).

High self-sufficiency and sufficient balance of the budget. YaNAO is an administrative subject of the Russian Federation, and is also a part of the Tyumen Region (ACRA rating — AAA(RU), outlook Stable). Government authorities of YaNAO, the Tyumen Region and KhMAO-Yugra (ACRA rating — AAA(RU), outlook Stable) concluded an agreement that regulates, among other things, regional social, infrastructure and investment programs for the benefit of all residents of the Tyumen Region (including YaNAO and KhMAO-Yugra). In accordance with the agreement, 29.5% of profit taxes collected in YaNAO and KhMAO-Yugra are consolidated in the budget of the Tyumen Region.

For 2017–2020, the average share of TNTR is estimated at 96% of the Region’s total revenues less subventions, while the share of its capital expenditures is expected to average 26% of total expenditures, the share of mandatory expenditures (as defined in ACRA's methodology) to 64% of total expenditures, and the operating balance to 39% of regular revenues. The above indicators reflect the well-balanced budget metrics and controlled budget expenditures.

According to the Region's budget laws, there will be no budget deficit in 2019 and 2020. ACRA expects that in 2019, the Region budget surplus will be no less than 7% of TNTR. In 9M2019, the budget revenues / expenditures have grown by 1.3 / 1.2 times as compared to the same period last year, up to RUB 186 bln / RUB 129 bln, respectively.

The structure of the Region’s tax revenues is characterized by a high share of property tax revenues, which averaged 43% in 2015–2017. Property tax revenues are more resilient to market changes, therefore their growth contributes to the stability of budget revenues. Since 2018, however, the structure of the Region’s revenues has been dominated by income tax revenues, which are more volatile and heavily dependent on market conditions. In ACRA's opinion, the risks associated with a possible decrease in income tax revenues on the back of unfavorable macroeconomic conditions, are compensated by a conservative policy that the Region pursues as far as the build-up of budget expenses is concerned, as well as by the formation of relevant reserves: as of November 1, 2019, the amount of the Region’s account balances was 1.7 times higher than that seen a year earlier.

The Region is a contributor to the federal budget, accounting for more than 80% of Russia’s natural gas output. The industrial structure of the gross regional product (GRP) is quite stable, and the contribution of natural resources to it consistently exceeds 50%. As of the end of 2017, YANAO ranked 2nd among Russian regions as far as the per capita GRP is concerned and 1st as far as the per capita cash income is concerned. The unemployment rate (according to the ILO methodology) in the Region is significantly lower than the national average.

YaNAO is one of the core contributors to the federal budget. In 2016–2018, an average of 83% of taxes and charges collected in the Region were transferred to the federal budget with just 17% remaining in the consolidated budget of the Region. In 2018, YaNAO’s contribution to the Russian budget from the mineral extraction tax (MET) amounted to 16% (2nd among Russian regions).

Key assumptions

  • The Region will maintain the current degree of budget balance;
  • The Region will maintain 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:

  • Higher social spending not supported by the growth of revenues;
  • A significant change in inter-budget relations in Russia.

Issue ratings

YaNAO, 35004 (ISIN RU000A0ZYM47), maturity date: December 25, 2024, issue volume — RUB 5.5 bln — ААА(RU).

YaNAO, 35003 (ISIN RU000A0ZYD55), maturity date: October 18, 2022, issue volume — RUB 1 bln — ААА(RU).

YaNAO, 35002 (ISIN RU000A0JX0Z8), maturity date: December 6, 2023, issue volume — RUB 20 bln — ААА(RU).

Credit rating rationale. In ACRA’s opinion, the below bonds issued by YaNAO are senior unsecured debt instruments, and their credit rating is equal to the rating assigned to YaNAO.

Regulatory disclosure

The credit ratings were assigned to YaNAO and bonds issued by YaNAO (ISIN RU000A0ZYM47, RU000A0ZYD55, RU000A0JX0Z8) 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 the Analytical Credit Rating Agency Within the Scope of Its Rating Activities. The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also applied to assign credit ratings to the above issues.

The credit ratings assigned to YaNAO and the bonds (ISIN RU000A0ZYM47, RU000A0ZYD55, RU000A0JX0Z8) issued by YaNAO were first published by ACRA on June 27, 2018.  The credit ratings of YaNAO and its outlook as well as the credit ratings of its bond issues (ISIN RU000A0ZYM47, RU000A0ZYD55, RU000A0JX0Z8) are expected to be revised within 182 days following the publication date of this press release in accordance with the Calendar of planned sovereign credit rating revisions and publications.

The credit ratings were assigned based on data provided by YaNAO, 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 the Government of YaNAO participated in their assignment.

No material discrepancies between data provided and data officially disclosed by YaNAO in its financial reports have been discovered.

ACRA provided no additional services to the Government of YaNAO. No conflicts of interest were discovered in the course of credit rating assignment.

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