Training on Forecasting September 17–18

ACRA affirms Moscow at AAA(RU), outlook Stable, and bond issue at AAA(RU)

The credit rating assigned to Moscow (hereinafter, Moscow, or the City) is based on the minimum debt burden, sustainable surplus of the operating balance, liquidity surplus, and well-developed economy.

About 12.6 million people live in Moscow (9% of the total population of Russia). Moscow ranks first in Russia in terms of the aggregate GRP. The status of political, financial, industrial, scientific and cultural center is a key driver of the economy of Moscow.

Key rating assessment factors

Well-developed economy of the City. According to ACRA's calculations, the per capita economic indicators of Moscow are much higher than the national averages. The rate of unemployment is consistently low (28% of the national average rate calculated according to the ILO methodology). The tax revenue differentiation by industry is high. According to ACRA's estimates, the maximum annual average contributions to the tax revenues of Moscow come from the following industries: 'Wholesale and retail sales' and 'Financial sector' (21.5% and 15.2%, respectively, in 2018). The social and utility infrastructure of Moscow is well developed.

Debt load level corresponds to minimum risk. In the period from 2016 to 2018, the City’s debt to operating balance ratio did not exceed 11%, reaching the minimum of 4% in 2018. ACRA estimates Moscow’s debt level by the end of 2019 to be at or below 9% (the minimum debt load level), if the budget performance is in line with the planned figures. Interest expenses are minor running into 0.3% of the operating balance in 2018 (the planned level for 2019 is 0.5%). Considering the current debt load level, the debt repayment schedule is of little significance, while the liquidity surplus indicates that the refinancing risk is nonexistent. The debt portfolio of Moscow as at July 1, 2019 comprised only bonds totaling RUB 30 bln to be redeemed in a bullet repayment in 2022.

Owing to the operating balance surplus, the City finances its capital expenses from own funds. The Moscow’s budget is highly sustainable. In 2016–2019, the average share of tax and non-tax revenues (TNTR) is expected to equal 99% of the total budget revenues, excluding subventions. The share of the operating balance as percentage of its regular revenues is assessed by the Agency as sufficient averaging 31% in 2016-2019. Owing to the operating balance surplus, Moscow can finance its capital expenses (averaging 25% of total expenses) with its own funds.

Budget liquidity surplus. The budget account balances, including bank deposits, form a significant liquidity reserve. For the six months of 2019, account balances increased by 27%. Each year, revenues generated by bank deposits where temporary free budget funds are held exceed debt service expenses.

Key assumptions

  • The budget expense growth rate will remain under control and the operating balance surplus will be maintained at 28–30% of regular revenues;
  • The budget liquidity will remain high.

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:

  • Significant decline in the operational balance surplus and  debt load growth;
  • Substantial changes in the inter-budget relations in the Russian Federation.

Issue ratings

Moscow Government Bond, 2006 (ISIN RU000A0JNYN1), maturity date: June 11, 2022, issue volume: RUB 30 bln — AAA(RU).

Rationale. In ACRA’s opinion, the above bond issue is a senior unsecured debt instrument, and its credit rating is equal to the rating assigned to Moscow.

Regulatory disclosure

The credit ratings were assigned to Moscow and to the bond issued by Moscow (ISIN RU000A0JNYN1) 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. To assign a credit rating to the bond issue above, ACRA also applied the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation.

For the first time, the credit rating of Moscow and the credit rating of the government bond (ISIN RU000A0JNYN1) issued by Moscow were published by ACRA on August 30, 2017 and October 17, 2017, respectively.

The credit rating of Moscow and its outlook as well as the credit rating of government bond of Moscow (ISIN RU000A0JNYN1) are expected to be revised within 182 days after the publication date of this press release in accordance with the Calendar of planned sovereign credit rating revisions and publications.

The assigned credit ratings are based on the data provided by Moscow, 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 Moscow Government participated in the rating process.

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

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

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