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ACRA affirms A-(RU) to the Ryazan Region, outlook Positive

The credit rating of the Ryazan Region (hereinafter, the Region) is based on its low relative debt load, medium flexibility of the budget structure and high budget liquidity.

The Ryazan Region is part of the Central Federal District. 48% of the Region’s population live in its administrative center, the city of Ryazan. The Region’s GRP is close to 0.5% of the total GRP of Russian regions. Nearly 0.8% of the country’s population live in the Ryazan Region.

Key rating assessment factors

Well-balanced budget with sufficient share of own revenues and high level of mandatory spending. The Region’s budget is marked by a sufficient share of tax and non-tax revenues (TNTR, 75% on average), which provides the Region with many opportunities to manage its own revenue base. The set of measures taken by the regional government, which are aimed at encouraging investments, is likely to help increase the scope of taxable activities in the long term. The high share of mandatory spending in the budget (75-80%) leaves few options for budget maneuvering. The Region maintains its own capital expenditures at 7-10% of total spending. The Region’s operating balance is moderate (20-25% of regular revenues) because of relatively flexible budget spending. The current credit quality level is immune to a negative scenario, which envisages a decline in TNTR by 5% vs. the projected level.

Low relative debt load of the Region’s budget and high share of fiscal loans in debt portfolio. The total debt to operating balance ratio (around 200%) corresponds to a medium risk level. According to ACRA’s base case scenario, the Region’s absolute debt will continue to decline, while the pace of decline will enable the Region to meet the terms of the budget loan agreement concluded with the Ministry of Finance of Russia. Since the share of fiscal loans in the Region’s debt portfolio is very significant (over 50%), the average effective interest rate on debt is low (less than 4%). As of April 1, 2019, the average repayment period is just above three years. Next commercial debt repayment is scheduled in late 2020 (56% of bank loans). ACRA assumes that the Region will try to increase the repayment period for a part of commercial debt, allowing it to maintain the minimal risk of refinancing in early 2020.

High liquidity of the budget. The Region’s monthly needs in funds may periodically be covered exclusively by account balances as of the beginning of the month. No funds are placed into bank deposits. Now and then, the Region raises funds from the Federal Treasury Department to finance planned cash gaps. The Region has enough freedom in using external liquidity sources to manage account balances and undertake expenditures in both planned and unexpected cash gaps.

Diversified economy with relatively low unemployment and per capita income below the national average. Manufacturing industry (refining, military machinery, food processing and production of construction materials) forms the core of the Region’s economy. High industry diversification of the economy has a positive effect on the diversification of the Region’s tax revenues. Tax revenue structure by revenue type is stable. An average growth rate of the real GRP of the Region has been lower than the aggregate GRP growth rate of all Russian regions in the last five years. Migration inflow does not offset natural population decline resulting in continuous depopulation of the Region.

Key assumptions

  • Maintaining a substantial share of manufacturing enterprises in the GRP’s structure;
  • Maintaining the share of mandatory budges expenses below 83%.

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:

  • Lower debt to operating balance ratio;
  • Refinancing of a significant portion of the commercial debt to maintain the repayment period above 2 years;
  • An increase in the relative amount of the development budget;
  • Economic growth outpacing the national average.

A negative rating action may be prompted by:

  • A significant shortening of the weighted average debt repayment period, particularly, maintenance of the current bank loan repayment schedule by early 2020;
  • Debt load (debt to operating balance ratio) growing above 3x;
  • A substantial growth of mandatory spending of the budget without a corresponding growth in TNTR of the Region.

Issue ratings

None.

Regulatory disclosure

The credit rating has been assigned 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.

For the first time, the credit rating of the Ryazan Region was published by ACRA on October 16, 2017. The credit rating of the Ryazan Region and its outlook are expected to be revised within 182 days after the publication date of this press release in compliance with the Calendar of planned sovereign credit rating revisions and publications.

The credit rating was assigned based on data provided by the Ryazan 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 rating is solicited, and the Ryazan Region Government participated in its assignment.

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

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

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