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

The credit rating of Moscow (hereinafter, the City) is based on the City’s minimal debt load, stable liquidity surplus, and the highest possible budget and economic profile ratings.

As of the end of 2019, about 12.6 million people, or approximately 9% of the Russian population, lived in the City. The City ranks first in the Russian Federation in terms of total GRP, and its high level of economic development is supported by its status as the political, financial, industrial, scientific, and cultural center of the country.

Key rating assessment factors

The City boasts the highest possible economic profile assessment. The maximum possible primary assessment of the City’s economic profile category is based on two factors: the ratio of the City’s per capita GRP to the national average and the ratio of average wage to the subsistence minimum. Unemployment, according to ILO methodology, is consistently low and has not exceeded more than 2% over the past six years. The increase in registered unemployment and the expected increase in unemployment at the end of this year, measured according to ILO methodology, will not affect the of the City’s economic profile assessment. Differentiation in tax revenues by industry is at a high level: according to ACRA, the weighted assessment of the maximum share of one industry in the City’s tax revenues does not exceed 17%. Unemployment levels and tax base concentration justify assigning the City the highest final economic profile assessment. The City is characterized by a high level of social and engineering infrastructure development.

Minimal debt load. Because the City’s debt to current income was 1.2% at the end of 2019, the City’s budget has a significant degree of safety in terms of debt load. Based on the planned budget assignments for 2020, this figure will not exceed 2.6%, which corresponds to the best estimate according to ACRA’s methodology. In ACRA’s stress scenario, the ratio may reach 22%. However, the actual figure will depend on the current deficit at the end of the year and on the decision to finance it using accumulated liquidity or attracting debt. In either case, the debt load assessment has not changed.

The current amount of debt is represented by bonds maturing in 2022, meaning there is no short-term debt in 2020. Interest expenses are insignificant.

The City’s budget boasts high operational efficiency. According to ACRA, the average ratio of the current operations balance to current revenue exceeded 0.2 in 2015−2019, indicating that not only current but also capital expenses can be financed with the City’s current revenues. This figure could turn negative this year, but this will be short term and should return to 0.2 in 2021. The share of tax and non-tax revenues in total revenues (excluding subventions) is close to 100%. Capital expenses have exceeded 19% on a yearly basis since 2016. Taking into account the parameters planned for the 2020 budget, which assume an increase in the deficit, the budget profile assessment should remain at the highest possible level.

Budget liquidity surplus. A significant amount of funds in the City’s budget accounts (including deposits) provides substantial amounts of liquidity. Income from placing temporarily available funds in bank deposits on an annual basis exceeds interest on debt servicing. The liquidity ratio exceeds the maximum possible assessment.

Key assumptions

  • Maintaining the high operational efficiency of the budget in the long term;
  • 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:

  • Significant decline in operational balance surplus with increased debt load;
  • Substantial changes in 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 bond listed above is a senior unsecured debt instrument, the credit rating of which corresponds to the credit rating of Moscow.

Regulatory disclosure

The credit ratings were assigned to Moscow and to the bond issued by Moscow (RU000A0JNYN1) 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. 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.

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

The credit rating of Moscow and the credit rating of the bond (RU000A0JNYN1) issued by Moscow are expected to be revised within 182 days after the publication date of this press release as per 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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