Training on SF, December 10–11

ACRA affirms credit rating A+(RU) on the Novosibirsk Region, outlook Stable, and affirms A+(RU) on bond issues, withdrawing the rating of the repaid issue

The credit rating was assigned to the Novosibirsk Region (hereinafter, the Region) based on low level of relative debt load, smooth debt repayment schedule and consistently moderate flexibility of budget expenses amid medium level of economic development indicators versus the national average.

The Novosibirsk Region is part of the Siberian Federal District and borders Kazakhstan and four Russian regions. Almost 2% of Russia’s population live in the Region, and around 1.5% of the total GRP of Russian regions is generated in the Region. The Novosibirsk Region is a large scientific center in the Siberian Federal District. According to the Region’s estimates, these activities (scientific research and development) account for 5.5% of its GRP.

Key rating assessment factors

Highly self-sufficient and moderately flexible budget. The Region independently finances budget expenses: from 2015 through 2018, the share of its revenues (excluding subventions) have amounted to 87%. The Region primarily finances its own capital expenditures, which account for around 17% of total expenses. The budget’s self-sufficiency is high, the share of mandatory spending is high, and the major portion of budget spending is represented by current needs and social expenses. According to ACRA’s estimates, the above spending profile will continue in the medium term.

Low level of relative debt load and smooth debt repayment schedule. The absolute debt size has been stable since 2015, and the debt to operating balance ratio has been around 1.6x since 2016. At the end of this year, the above ratio is projected to be at 1.6x-1.7x. The Region follows a balanced approach to managing its debt profile in terms of repayments and engages in fiscal loan restructuring. The debt servicing ratio at the end of each year indicates no refinancing risks. The Region uses a passive account management mechanism. Therefore, the turnover for repaying debt within each year is increasing, and the debt size is reducing over the course of the year as compared to January 1 of each year. As a result, the Region saves on interest expenses and the interest expense to operating balance ratio is consistently low.

A diversified economy with highly developed transport-logistics and scientific research segments. The first of the above segments has a visible effect on the Region’s budget and contributes distinctly to the economy (around 16% of GRP and 10% of tax revenues), and the second segment has a minor effect as the commercialization of scientific and technical inventions takes a long time. GRP per capita and per capita income do not exceed 83% of the national average over the examined period.

Key assumptions

  • Retaining the share of mandatory expenses within 75% of budget expenses;
  • Keeping capital expenditures at a stable level;
  • Maintaining the conservative debt policy.

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:

  • Growth of the Region’s economy and narrowing the gap between its economic indicators and the national averages;
  • Decrease in share of mandatory spending in the Region’s budget.

A negative rating action may be prompted by:

  • A slowing GRP growth in the medium term below the national average growth rates;
  • Decline in budget revenues by 7% or more from the figures estimated by ACRA;
  • Increase in relative debt load.

Issue ratings

Affirmed

The Novosibirsk Region, 34016 (RU000A0JUR46), repayment date: October 8, 2019, issue volume: RUB 7 bln — A+(RU);

The Novosibirsk Region, 34017 (RU000A0JWUV3), repayment date: October 3, 2021, issue volume: RUB 5 bln — A+(RU);

The Novosibirsk Region, 34018 (RU000A0ZYBD3), repayment date: September 27, 2022, issue volume: RUB 5 bln — A+(RU);

The Novosibirsk Region, 34019 (ISIN RU000A0ZZPB4), repayment date: October 15, 2023, issue volume: RUB 5 bln — A+(RU).

Credit rating rationale. In ACRA’s opinion, the above bonds issued by the Novosibirsk Region are senior unsecured debt instruments, and their credit rating is equal to the rating assigned to the Novosibirsk Region — A+(RU).

Withdrawn

The Novosibirsk Region, 34015 (RU000A0JU963), repayment date: October 30, 2018, issue volume: RUB 5 bln.

Credit rating withdrawal rationale. The withdrawal of the credit rating assigned to the bond issued by the Novosibirsk Region 34015 (ISIN RU000A0JU963) is due to the full repayment of the issued bond.

Regulatory disclosure

The credit ratings have been assigned to the Novosibirsk Region and to bonds issued by the Novosibirsk Region (ISIN RU000A0JU963, RU000A0JUR46, RU000A0JWUV3, RU000A0ZYBD3, RU000A0ZZPB4) 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.

The credit rating of the Novosibirsk Region and credit ratings of government securities of the Novosibirsk Region (ISIN RU000A0JU963, RU000A0JUR46, RU000A0JWUV3, RU000A0ZYBD3) were published by ACRA on October 15, 2018, for the first time.

The credit rating of the Novosibirsk Region and its outlook as well as the credit ratings of government securities issues of the Novosibirsk Region (RU000A0JUR46, RU000A0JWUV3, RU000A0ZYBD3, RU000A0ZZPB4) are expected to be revised within 182 days after the rating action date (November 6, 2018) in compliance with the 2018 calendar of planned sovereign credit rating revisions and publications.

The credit ratings were assigned based on the data provided by the Novosibirsk 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 Novosibirsk Region Government participated in their assignment.

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

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

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