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ACRA affirms the Tambov Region’s credit rating at BBB+(RU), outlook Positive, and affirms BBB+(RU) for its bonds

The credit rating of the Tambov Region (hereinafter, the Region) is due to stable indicators of budget discipline, sufficient budget liquidity, and a smooth debt repayment schedule. The credit rating is affected by the agricultural focus of the regional economy, which restricts budget revenue growth rates. The credit rating outlook is determined by the expected improvement in the Region’s budget provided that tax revenues increase and the current debt policy remains unchanged.  

The Tambov Region is located in the Central Federal District. Slightly less than 1% of Russia’s population lives in the Region. In 2017, the Region’s GRP amounted to approximately RUB 320 bln (around 0.5% of Russia’s total GRP). The regional economy is based on agriculture, which generates up to one third of the Region’s GRP.

Key rating assessment factors

No refinancing risk. The Region’s debt to operating balance ratio at the end of the year will amount to 1.5x, while the debt to proprietary income will be approximately 73% (within the budget loan restructuring agreements). The structure and schedule of debt repayment do not assume refinancing risk: almost half of the debt is made up of bonds, and around a quarter falls on restructured budget loans. From 2019 to 2021, the Tambov Region will refinance no more than 20% of its debt annually, and debt-servicing expenses will does not exceed 10% of the operating budget. ACRA believes that in the medium-term, the Region will be able to implement its agreements with the Russian Ministry of Finance and adhere to the debt load reduction schedule.

Stable budget discipline indicators with a large share of capital expenditures. The regional budget's self-sufficiency is medium, and budget discipline indicators show high capital expenditures that, however, have gradually declined from 31% in 2014 to 21% in 2018. Mandatory budget expenditures (64% on average from 2015 to 2018) have no adverse effect on the Region’s operating balance. Tax revenues are recognized as well diversified. In addition, ACRA notes the risks for the Region’s budget connected with the concentration of the Region’s tax base in the following related industries: agriculture and agricultural processing. The total share of these sectors is approximately 30% of the GRP and 15% of the budget’s tax revenues. The further growth of these revenues will correlate with wage dynamics and agricultural product processing technology.

Key assumptions

  • Using short-term loans provided by the Federal Treasury Department to finance cash gaps;
  • Financing of the Region’s budget deficit though market debt instruments;
  • Maintaining mandatory expenditures within 65% of budget expenditures. 

Potential outlook or rating change factors

The Positive outlook assumes that the rating will most likely change within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • Increase in the budget’s self-sufficiency;
  • Increase in the Region’s operating balance;
  • Lower debt-servicing expenses achieved by substituting bank loans with bond issues.

A negative rating action may be prompted by:

  • Growth of mandatory expenditures of the Region’s budget paired with a higher debt load;
  • Violation of budget loan restructuring conditions in terms of debt lowering rates and the need for early refinancing. 

Issue ratings

Tambov Region Government Bond, 35002, (ISIN RU000A0JWT75); maturity date: September 20, 2023; issue volume: RUB 1.6 bln – BBB+(RU).

Tambov Region Government Bond, 35003, (ISIN RU000A0JXVH8); maturity date: July 12, 2024; issue volume: RUB 3.5 bln – BBB+(RU).

Tambov Region Government Bond, 35004, (ISIN RU000A0ZYJ18); maturity date: December 5, 2025; issue volume: RUB 3 bln – BBB+(RU).

Rationale. The Agency is of the opinion that bonds issued by the Tambov Region have a status of senior unsecured debt. Credit ratings of such debt instruments correspond to the credit rating of the Tambov Region.

Regulatory disclosure

The credit ratings of the Tambov Region and bonds issued by the Tambov Region (ISIN RU000A0JWT75, ISIN RU000A0JXVH8, ISIN RU000A0ZYJ18) have 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. In the course of assigning credit ratings to the bond issues above, Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation has also been used.

The credits rating assigned to the Tambov Region and the bonds (ISIN RU000A0JWT75, ISIN RU000A0JXVH8, ISIN RU000A0ZYJ18) issued by the Tambov Region were first published by ACRA on July 3, 2017 and July 14, 2017, July 11, 2017, and December 13, 2017, respectively. The credits ratings assigned to the Tambov Region and the bonds (ISIN RU000A0JWT75, ISIN RU000A0JXVH8, ISIN RU000A0ZYJ18) issued by the Tambov Region are expected to be revised within 182 days following the rating action date (December 20, 2018) as per the 2018 Calendar of planned sovereign credit rating revisions and publications.

The credit ratings are based on the data provided by the Tambov 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 Tambov Region Administration participated in their assignment.

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

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

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