ACRA affirms BBB(RU) to the Tomsk Region, outlook Stable, and BBB(RU) to bond issues

The credit rating of the Tomsk Region (hereinafter, the Region) is based on the moderate level of debt load in relation to the Region’s operating income, average regional economic development compared to the national average, moderate budget profile indicators, and low liquidity. The credit rating is limited by the possible decline in internal revenues should the unfavorable situation in the hydrocarbon markets continue into the medium term.

The Tomsk Region is located in the Siberian Federal District and is home to 1.1 mln people (0.7% of the Russian population). In 2018, the Region’s GRP amounted to RUB 579 bln, about 0.7% of the total GRP for all regions of the Russian Federation. Almost a third of the Region’s territory is unpopulated due to the large area of wetlands and forests. Tomsk is a major educational center and in 2018 the Region ranked third after Moscow and St. Petersburg in terms of the number of students per 10,000 inhabitants among Russian regions.

Key rating assessment factors

Growth of the debt load amid declining debt refinancing risk. According to ACRA’s assessments, the Region’s debt to operating income ratio may grow from 50% at the end of 2019 to 63% at the end of 2020 as a result of a possible reduction of tax and non-tax revenues (TNTR) and attracting of new loans to finance the budget deficit. This indicator corresponds to a moderate debt load. ACRA expects the debt load to still be moderate by the end of 2021. Debt servicing expenses are not a burden on the regional budget due to the high share of budget loans in the debt structure and commercial debt being substituted by Federal Treasury Department Loans over the course of the year (the average1 level of interest expenses in 2017–2021 should equal less than 3% of aggregate budget expenses, excluding subventions). As of November 1, 2020, the Region’s debt obligations included bonds (50%), budget loans (28%). The remainder is made up of bank loans subject to repayment in 2022–2023. The Region also issues bonds that are available for purchase by the general public and may be repaid before maturity date. Such bonds account for 19% of the Region’s total bonds as of November 1, 2020. The placement of a new issue of bonds and changes to the budget loan repayment schedule has lowered the refinancing risk in the coming years: the Region will have to repay 9% of its debt obligations in 2020, followed by 19% in 2021. As of October 1, 2020, account balances exceeded debt obligations subject to repayment by the end of 2020.

1Hereinafter, averages are calculated according to the Methodology for Credit Ratings Assignment to Regional and Municipal Authorities of the Russian Federation.

The Region’s budget indicators depend on income tax revenues. The volatility of income tax revenues is due to regional taxpayers who are part of the consolidated group of taxpayers, and oil price dynamics in rubles. According to ACRA, this year income tax revenues may be 40% lower than the 2019 indicator due to the continuing unfavorable situation in hydrocarbon markets and the instability of the situation regarding disease control and prevention. The average share of capital expenses in 2017–2021 should amount to around 13% of total expenses (excluding subventions). On average the Region finances three-quarters of its capital expenses using internal revenues and only a quarter through transfers from the federal budget. This means capital expenses are a potential area where budget expenses can be reduced should income decline. The average share of internal revenues in the aforementioned period should equal 76%. In 2017–2021, the average ratio of the balance of current operations to operating income (according to ACRA’s methodology) will stand at 5%, and the ratio of the average modified budget deficit to operating income will amount to -9%. These indicators show that although operating income is sufficient to cover current expenses, it will be necessary to resort to borrowing to finance capital expenses.

The Region’s economy is dependent on oil production. Almost a third of the Region’s GRP (32% in 2018) comes from mining operations, mainly oil. Deterioration in the structure of remaining reserves, production in highly developed fields, and an increase in the share of hard-to-recover reserves have led to a decline in oil production in the Region over the past six years. GRP per capita remains below the national average (93% in 2018). Unemployment in the Region fell from 9.1% in 2011 to 5.5% in 2019. However, in June to August 2020 it grew to 10%. The average monthly wage to subsistence wage ratio in the Region exceeded 3.5x in 2019.

Key assumptions

  • TNTR falling by no more than 10% in 2020 compared to 2019, followed by 7% growth in 2021;
  • Reduction of capital expenses if the income target is not achieved.

Potential outlook or rating change factors

The Stable outlook assumes that the credit rating will most likely remain unchanged within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Maintaining budget profile parameters amid reduced oil prices;
  • Execution of the 2020 budget with a deficit of less than 4% of internal revenues;
  • Lower reliance on external sources of liquidity;
  • Maintaining debt load at lower than 55% of operating income.

A negative rating action may be prompted by:

  • A shift in the Region’s debt policy towards using short-term debt instruments;
  • Debt load exceeding 80% of current expenses.

Issue ratings

Tomsk Region, 34055 (ISIN RU000A0JW1K9), maturity date: June 19, 2023, issue volume: RUB 7 bln — BBB(RU).

Tomsk Region, 34062 (ISIN RU000A0ZYMJ7), maturity date: December 19, 2024, issue volume: RUB 7 bln — BBB(RU).

Rationale. In ACRA’s opinion, the bonds issued by the Tomsk Region are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of the Tomsk Region.

Regulatory disclosure

The credit ratings have been assigned to the Tomsk Region and to the bonds issued by the Tomsk Region (RU000A0JW1K9, RU000A0ZYMJ7) 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 for the Russian Federation was also applied to assign credit ratings to the above issues.

The credit rating of the Tomsk Region and the credit ratings of the issues of government securities of the Tomsk Region (RU000A0JW1K9, RU000A0ZYMJ7) were published by ACRA for the first time on April 10, 2018. The credit rating of the Tomsk Region and its outlook as well as the credit ratings of the issues of government securities of the Tomsk Region (RU000A0JW1K9, RU000A0ZYMJ7) are expected to be revised within 182 days following the publication date of this press release as per the Calendar of planned sovereign credit rating revisions and publications.

The credit ratings were assigned based on the data provided by the Administration of the Tomsk Region, 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 Administration of the Tomsk Region participated in the rating process.

No material discrepancies between the provided data and the data officially disclosed by the Tomsk Region in its financial statements have been discovered.

ACRA provided no additional services to the Administration of the Tomsk Region. No conflicts of interest were discovered in the course of credit rating assignment.

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