ACRA Modelling Day - 2018

ACRA affirms BBB(RU) to the Komi Republic, outlook Stable, and assigns BBB(RU) to its government bonds

ACRA affirms the credit rating to the Komi Republic (the Republic) on the tax revenues increased in 2017 (which allowed the Republic to push down its debt) and its geographical and socioeconomic specifics, as the share of the extractive sector in the gross regional product (GRP) is high.

The Republic is located in the North-Western Federal District and borders with seven other administrative entities of the Russian Federation. Certain part of the territory belongs to the Far North area. About 0.6% of the Russian population live in the Region. In 2017, the GRP of the Republic amounted to RUB 524.6 billion (0.8% of the Russian aggregate GRP).

Key rating assessment factors

Dependence of the economy on the extractive sector amid irregular development of territories. The extractive sector drives the socioeconomic development in the Republic, as the coal, oil and gas extraction industries generate over one-third of the GRP of the Republic. Jointly with the sub-sector "Production of petroleum products," the extractive sector generates two-thirds of the industrial production output of the Republic. A significant differentiation of socio-economic development of extractive and non-extractive areas is characteristic of the Republic. Further economic development of the Republic depends on geologic exploration investments as well as on development of other branches of the economy (woodworking, agribusiness).

Budget discipline is driven by a high share of mandatory expenses. In 2017, profit tax and property tax grew in aggregate by RUB 11 billion, while the growth of mandatory expenditures was restricted, which led to higher operating balance and the budget surplus of RUB 3.3 billion in 2017 (the fund were applied to repay the Republic's debt). The profit tax was overpaid, and the profit tax revenues from the key taxpayers (oil and gas producers) will decline in 2018, which will be detrimental for the budget discipline. The weak industry diversification is reflected in the tax base volatility and ill-diversified tax revenues. Capital expenditures, mostly budgetary, are about 10% of the total republican expenses.

High debt burden and possible implementation of the public sector risk. Increased tax revenues and application of budget surplus to repay debts in 2017 have decreased the ratio of debt to operating balance down to 2.3x compared to 8.2 in 2016. The operating balance after interest almost covers the debt repayments. According to ACRA estimates for 2018, even if the target budget deficit is met, the debt burden will not be critical, thanks to a stricter control over mandatory expenditures and a comfortable debt repayment schedule, which debt includes bonds (60%), restructured budget loans (20%), bank loans (6%), guarantees (1%), and a loan from the Federal Treasury (13%) refinanced by a bank loan. ACRA notes the risk of excessive liabilities of state-owned enterprises, as it may require certain support from the republican budget.

Sufficient budget liquidity. The Region’s liquidity position is sufficient to timely cover budget expenses, including interest payments, thanks to a possibility to obtain loans from the Federal Treasury Department. Such loans, jointly with bank credit lines, create a substantial debt turnover (about 100% of budget revenues) but does not boost interest expenses. Current monthly expenses regularly exceed monthly budget balances.

Key assumptions

  • The share of mandatory expenditures in the total expenditures of the Republic will be kept not higher than 80%;
  • The debt policy will be maintained to perform budget loan restructuring agreements;
  • In 2018–2020, the profit tax revenues, after tax refunds, will exceed same in 2015–2016.

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 positive rating action may be prompted by:

  • A GRP growth outstripping the national average;
  • A lower share of mandatory budget expenses;
  • A deficit-free budget and a substantial decline in absolute debt;
  • A lower dependence of the budget on the external funding sources.

A negative rating action may be prompted by:

  • A growing share of mandatory expenditures and a declining operating balance down to 10–12% of regular revenues;
  • Volatile budget revenues caused by deteriorating financial positions of regional enterprises or by a substantial tax refund and, consequently, growing relative debt burden.

Issue ratings

Credit rating rationale. ACRA is of the opinion that the below bonds issued by the Komi Republic are senior unsecured debt instruments, which credit ratings are equal to that of the Komi Republic.

Key issue properties

1)  RegS / ISIN: RU35011KOM0 / RU000A0JUN81

Issue volume / outstanding

RUB 10.1 bln / RUB 3.03 bln

Issue date / maturity date

June 05, 2014 / November 27, 2019

 

2)  RegS / ISIN: RU35012KOM0/ RU000A0JVKF9

Issue volume / outstanding

RUB 11 bln / RUB 10 bln

Issue date / maturity date

November 17, 2015 / June 23, 2021

 

3)  RegS / ISIN: RU35013KOM0 / RU000A0JWZM1

Issue volume / outstanding

RUB 6.18 bln / RUB 3.095 bln

Issue date / maturity date

November 23, 2016 / November 16, 2022

 

4)  RegS / ISIN: RU35014KOM0 / RU000A0JXUD9

Issue volume / outstanding

RUB 10 bln / RUB 10 bln

Issue date / maturity date

August 30, 2017 / May 25, 2024

 

Regulatory disclosure

The credit ratings have been assigned to the Komi Republic and bonds (ISIN RU000A0JUN81, ISIN RU000A0JVKF9, ISIN RU000A0JWZM1, ISIN RU000A0JXUD9) issued by the Komi Republic 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 credit ratings 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 the Komi Republic was first published by ACRA on September 05, 2017. The credit ratings of the government bonds (ISIN RU000A0JUN81, ISIN RU000A0JVKF9, ISIN RU000A0JWZM1, ISIN RU000A0JXUD9) issued by the Komi Republic were assigned for the first time.

The credit rating of the Komi Republic and its outlook, as well as the credit ratings assigned to the government bonds (ISIN RU000A0JUN81, ISIN RU000A0JVKF9, ISIN RU000A0JWZM1, ISIN RU000A0JXUD9) issued by the Komi Republic are expected to be revised within 182 days following the rating action date (March 02, 2018) as per the 2018 Calendar of planned sovereign credit rating revisions and publications.

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

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

ACRA provided no additional services to the Government of the Komi Republic. No conflicts of interest were discovered in the course of credit rating process.

Log in

Forgot password

Sign up

Reset password

Reset password

Termsofuse

Полное использование материалов сайта разрешается только с письменного согласия правообладателя, АКРА (АО). Частичное использование материалов сайта (не более 30% текста статьи) разрешается только при условии указания гиперссылки на непосредственный адрес материала на сайте www.acra-ratings.ru . Гиперссылка должна быть размещена в подзаголовке или в первом абзаце материала. Размер шрифта гиперссылки не должен быть меньше шрифта текста используемого материала.