ACRA affirms AA+(RU) to the Republic of Tatarstan, changes outlook to Positive

The credit rating of the Republic of Tatarstan (hereinafter, the Republic) is based on the minimum refinancing risk, high regional economy indicators against national averages, and the high self-sufficiency and flexibility of the regional budget. The rating outlook has been changed on the better assessment of the need to grant targeted financial support to companies and financial institutions of strategic importance for the Republic's economy or those heavily relying on the republican budget. The Agency also notes that the liquidity of the republican budget has grown over the last six months.

The Republic of Tatarstan is a part of the Volga Federal District. The Region’s population is 3.9 mln people (2.7% of the Russian population). In 2017, the Republic’s GRP amounted to around 2.8% of the total GRP of the Russian regions.

Key rating assessment factors

Low credit risk. The Republic’s government debt (RUB 94.2 bln as of April 1, 2019) includes budget loans (90% of the total debt) and guarantees (10%) issued by the Republic in 2005 to cover the obligations of KAMAZ PTC (ACRA rating: А+(RU), outlook Stable) before the federal budget. In the period under review, the republican debt was lower than the annual operating balance of the Republic, which indicates a low level of credit risk. Almost all liabilities of the Republic fall due in 2023–2036. The debt service costs of the Republic do not exceed 0.1% of the operational balance of the budget. As of April 1, 2019, the amount of funds deposited by the Republic with banks covered 51% of the republican debt.

Well-balanced budget with high self-sufficiency and high capital expenditures. The 2018 budget of the Republic was executed with a surplus of RUB 4.6 bln or 2% of tax and non-tax revenues (TNTR). The high budget self-sufficiency is evidenced by the 86% share of internal revenues (excl. subventions) in the total budget. The share of capital expenditures is traditionally high (38% on average in 2015–2018). According to the current budget law for 2019 (as amended on March 20, 2019), the republican budget deficit is planned at 11.1% of TNTR (RUB 22.9 bln), which will be financed from cash reserves held on budget accounts, without recourse to debt financing. In the last 12 months, the average amount of funds deposited by the Republic with commercial banks has been 1.9 times higher than the planned budget deficit.

Key assumptions

  • A limited likelihood of financial support from the Republic to companies and financial institutions of strategic importance for the regional economy or those heavily relying on the republican budget;
  • The 2019 budget will be executed without the need to borrow commercial loans.

Potential outlook or rating change factors

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

A positive rating action may be prompted by:

  • Higher transparency and predictability of relations between the Republic and the companies (including financial institutions) of strategic importance for its economy and those heavily relying on the republican budget.

A negative rating action may be prompted by:

  • Growing likelihood of extraordinary support by the Republic to public sector companies and financial institutions;
  • A significant growth of mandatory budget expenditures;
  • A breach of budget loan restructuring rules by the Republic.

Regulatory disclosure

The credit rating was assigned to the Republic of Tatarstan 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 assigned to the Republic of Tatarstan was published by ACRA on November 17, 2017. The credit rating and credit rating outlook are expected to be revised within 182 days following 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 the data provided by the Government of the Republic of Tatarstan, information from publicly available sources (the Ministry of Finance of Russia, the Federal State Statistics Service, and the Federal Tax Service), as well as ACRA’s own databases. The credit rating is solicited, and the Government of the Republic of Tatarstan participated in the rating process.

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

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

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