Training on Forecasting September 17–18

ACRA affirms the Khanty-Mansiysk Autonomous Okrug - Ugra at ААА(RU), outlook Stable, and bond issues at AAA(RU)

The credit rating of the Khanty-Mansiysk Autonomous Okrug – Ugra (hereinafter, the Region) is based on high regional economic indicators, the high liquidity of the Region's budget, and a low debt load.

The Region is located in the Ural Federal District. The Region is an administrative subject of the Russian Federation and at the same time is a part of the Tyumen Region1. The regional population is 1.7 mln (1.1% of Russia’s population). The Region’s GRP amounted to RUB 3,511 bln in 2017, around 5% of Russia’s total GRP. According to the Region’s assessments, its GRP amounted to RUB 3,967 bln in 2018.

1Part of the income tax revenues collected in the Region goes to the Tyumen Region’s budget (its size is regulated by the contract between the Tyumen Region and the Region and amounts to 29.5%).

Key rating assessment factors

Low debt load and high budget liquidity. The Region’s debt portfolio is composed entirely of bonds with maturities before 2024. The debt to operating balance ratio will amount to 40% (minimal risk level) by the end of 2019. According to ACRA’s forecast, this ratio will remain within the limits corresponding to a low level of risk in 2020. The operating balance (excluding interest expenses) will be much higher than the volume of repayable debt over the course of 2019. The Region’s current (as of August 1, 2019) account balances are more than 7x higher than its total debt and exceed monthly budget expense averages for 7M 2019 by more than 5x.

The region is a federal budget donor, producing more than 40% of Russian oil. The Region’s GRP sectoral structure is stable and the contribution of natural resources to this indicator is higher than 60%. At the end of 2018, 90% of taxes and fees collected in the Region were sent to the Federal budget and only 10% went to the Region’s consolidated budget. At the same time, revenues from the Region amounted to 26% of the Federal budget’s total tax revenues for this period. The Region ranks 3rd in GRP per capita among Russian regions. The Region’s unemployment level is significantly lower than the national average according to ILO methodology.

High budget self-sufficiency. From 2016 to 2019, the share of tax and non-tax revenues (TNTR) averaged 96% of the Region’s total revenue (excluding subventions). According to ACRA’s methodology, the share of mandatory expenditures in 2018 amounted to 77%. In 2018, the combination of high oil prices and the low exchange rate of the national currency (which had not been the case in previous years) led to high ruble oil prices. As a result, in 2018, the regional budget’s income tax revenues grew significantly: from RUB 45 bln in 2017 to RUB 121 bln. This allowed the Region to fulfill its budget with a surplus of RUB 37 bln (14% of the Region’s TNTR).

The current version of the Region’s budget law for 2019 provides for a reduction in income tax revenues by 41% (up to RUB 71 bln) and the fulfillment of the budget with a deficit of RUB 20 bln (11% of the Region's TNTR). The Region plans to finance this using the balances formed in 2018 and without resorting to long-term borrowings. ACRA estimates that the actual decline in income tax revenues in 2019 compared to 2018 may be below the level projected by the Region. Income tax revenues only declined by 10% in H1 2019 compared to H1 2018.

Key assumptions

  • Maintaining countercyclical budget policy in terms of expenditure planning;
  • Fulfilling the 2019 budget with a deficit lower than 11% of TNTR;
  • Maintaining high budget liquidity.

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:

  • Higher social spending in the Region’s budget without a corresponding increase in revenues;
  • Growth in budget deficit up to 20% of TNTR as a result of TNTR underpayment in 2019;
  • Significant changes in inter-budget relations in Russia.

Issue ratings

Khanty-Manskiysk Autonomous Okrug – Ugra, 34001 (ISIN RU000A0JUWB5), maturity date: October 13, 2019, issue volume: RUB 14 bln, — ААА(RU);

Khanty-Manskiysk Autonomous Okrug – Ugra, 35001 (ISIN RU000A0JX215), maturity date: December 18, 2023,  issue volume: RUB 6 bln, — ААА(RU);

Khanty-Manskiysk Autonomous Okrug – Ugra, 35002 (ISIN RU000A0ZYKW4), maturity date: December 17, 2024, issue volume: RUB 7 bln, — ААА(RU).

Rationale. ACRA is of the opinion that the above bonds issued by the Khanty-Manskiysk Autonomous Okrug - Ugra are senior unsecured debt instruments, which credit ratings are equal to that of the Khanty-Manskiysk Autonomous Okrug - Ugra.

Regulatory disclosure

The credit ratings of the Khanty-Manskiysk Autonomous Okrug - Ugra and bonds (ISIN RU000A0JUWB5, RU000A0JX215, RU000A0ZYKW4) issued by the Khanty-Manskiysk Autonomous Okrug - Ugra  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 Analytical Credit Rating Agency within the Scope of Its Rating Activities. In the course of assigning a credit rating to the bond issues above, the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation was also used.

The credit rating of the Khanty-Manskiysk Autonomous Okrug - Ugra and the credit ratings of the government bonds (ISIN RU000A0JUWB5, RU000A0JX215, RU000A0ZYKW4) issued by the Khanty-Manskiysk Autonomous Okrug - Ugra were first published by ACRA on September 26, 2017, September 28, 2017, September 28, 2017, and December 15, 2017, respectively.

The credit rating of the Khanty-Manskiysk Autonomous Okrug - Ugra and its outlook, as well as the credit ratings of the government bonds (ISIN RU000A0JUWB5, RU000A0JX215, RU000A0ZYKW4) issued by the Khanty-Manskiysk Autonomous Okrug - Ugra 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 were assigned based on the data provided by the Khanty-Manskiysk Autonomous Okrug - Ugra, 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 Government of the Khanty-Manskiysk Autonomous Okrug - Ugra participated in the rating process.

No material discrepancies between the provided data and the data officially disclosed by the Khanty-Mansiysk Autonomous Okrug - Ugra in its financial statements have been discovered.

ACRA provided no additional services to the Government of the Khanty-Mansiysk Autonomous Okrug - Ugra. No conflicts of interest were discovered in the course of credit rating process.

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