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ACRA affirms AAA(RU) to Saint Petersburg, outlook Stable, and AAA(RU) to bond issues

The credit rating of Saint Petersburg (the City) is based on the well-developed regional economy, balanced budget structure, sufficient budgetary discipline, low current and projected debt load, and excessive budget liquidity.

St. Petersburg is a city of federal importance. 3.6% of the Russian population live there, and the local GRP is about 5% of the aggregate GRP of the Russian Federation.

Key rating assessment factors

Balanced budget structure and sufficient budgetary discipline. The City budget is characterized by high self-sustainability: in 2016–2019, the annual internal revenues are expected to average 98%, mandatory expenditures (as defined in ACRA's methodologies) to 72%, and capital expenditures to about 19%. In 2018, the city budget was executed with a surplus of RUB 10 bln, while the tax and non-tax revenues (TNTR) grew by 13% to RUB 580 bln, and the operating balance (as defined in ACRA's methodology) increased by 1.6 times to RUB 127 bln. According to the budget law for 2019, the city budget deficit is expected to be RUB 52 bln (9% of the TNTR), which is planned to be covered by bond issues; the budget revenues and expenditures are planned to increase by 2% and 13%, respectively. ACRA expects that in 2019, the actual budget deficit will be half as much as planned; revenues will grow by at least 6% compared to 2018, while the operating balance will remain at the level of 2018.

Low current and projected debt load. At the end of 2018, the City's debt load was 24% of the operating balance, which corresponds to the minimum risk. The debt includes bond loans only, whose total par value is RUB 30.1 bln and maturities fall on 2022–2026. In case the scenario provided for by the budget law comes true, the debt load would increase to 81% of the operating balance by late 2019. In the ACRA's scenario, the debt load of the City may amount to 51%. The above figures indicate a low level of risk. In the medium term, we see no refinancing risks. Debt service costs are not burdensome for the city budget.

Excessive budget liquidity. The City has been regularly depositing temporary free funds with banks and timely fulfilling all of its expenditure obligations. As of May 1, 2019, the amount of funds held by the City on bank deposits was 1.8 times higher than the volume of its debt obligations.

Key assumptions

  • The City will continue to control the growth rate of mandatory expenses;
  • The budget capex will remain at 20%;
  • High budget liquidity;
  • The economic growth rate will remain higher than the national average.

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 negative rating action may be prompted by:

  • Deceleration of economic growth coupled with lower tax revenues and inability to cut budget expenditures;
  • The debt load growing much faster than the operating balance.

Issue ratings

Saint Petersburg, 35001 (ISIN RU000A0ZYHX8); maturity date: May 28, 2025, issue volume: RUB 30 bln — AAA(RU).

Saint Petersburg, 35002 (ISIN RU000A0ZYKJ1); maturity date: December 4, 2026, issue volume: RUB 25 bln — AAA(RU).

Credit rating rationale. In ACRA’s opinion, the above bonds issued by Saint Petersburg are senior unsecured debt instruments, which credit ratings are equal to that of Saint Petersburg

Regulatory disclosure

The credit ratings were assigned to Saint Petersburg and bonds (ISIN RU000A0ZYHX8, RU000A0ZYKJ1) issued by Saint Petersburg 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 assigning credit ratings to the above bond issues, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also applied.

The credit ratings assigned to Saint Petersburg and the bonds (ISIN RU000A0ZYHX8, RU000A0ZYKJ1) issued by Saint Petersburg were first published by ACRA on June 27, 2017, December 4, 2017, and December 12, 2017, respectively. The credit ratings assigned to Saint Petersburg and the bonds (ISIN RU000A0ZYHX8, RU000A0ZYKJ1) issued by Saint Petersburg are expected to be revised within 182 days following the publication date of this press release as per the Calendar of planned sovereign credit rating revisions and publications.

The credit ratings are based on data provided by Saint Petersburg City Government, information from publicly available sources (the RF 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 Saint Petersburg City Government participated in their assignment.

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

ACRA provided no additional services to Saint Petersburg City Government. No conflicts of interest were discovered in the course of credit rating assignment and affirmation.

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