ACRA affirms B(RU) to the Republic of Mordovia, status “Rating under revision: negative,” and B(RU) to bond issues

The credit rating of the Republic of Mordovia (hereinafter, the Region) is based on a high debt load and liquidity shortage, moderate budget profile indicators, and a moderately low economic profile.

The status “Rating under revision: negative” is based on the Region’s lack of liquidity sources to refinance debt in 2020.

The Republic of Mordovia is part of the Volga Federal District. It has a population of 0.8 million (0.55% of the total population in Russia). The Region estimated its 2019 GRP at RUB 246 bln (0.3% of the total GRP of Russian regions).

Key rating assessment factors

High debt load and liquidity shortage. The Region’s debt as of July 1, 2020, stood at RUB 50.8 bln (RUB 51.1 bln at the beginning of 2020). From January to July, the Region’s debt structure did not change significantly: RUB 2 bln in budget loans were repaid, a loan from the Federal Treasury for RUB 2.6 bln was raised, and RUB 1 bln in bank loans were repaid.

The repayment schedule for bank debt has changed. RUB 4.4 bln in bank loan repayments was postponed until 2021 due to a part being refinanced and another part being prolonged as part of new loan agreements (according to Article 11 of Federal Law 98-FZ from April 1, 2020). As of July 1, 2020, the Region had to repay RUB 14.4 bln in bank loans in 2021. The postponement of loan repayments is a positive factor, but the deferral period is not enough to reduce refinancing risks.

The repayment schedule for budget loans has also changed. The Region will not repay budget loans until 2021 (with the exception of the Treasury loan), at which point it will need to repay RUB 0.8 bln.

Therefore, for the remainder of 2020, the Region will have to refinance a fifth of its debt, including RUB 4.9 bln in bank loans, RUB 2.6 bln on the Treasury loan, and RUB 2.4 bln in bonds.

ACRA believes that the bank loans can be extended or refinanced. However, there is no liquidity reserve to repay bonds in September and October of this year as the Region does not have open, unused credit lines and account balances are minimal.

ACRA assesses the Region’s debt refinancing risk as extremely high, and the Treasury credit limit has been exhausted. The total debt of municipalities exceeds their internal revenues.

Risks of executing the 2020 budget with a deficit. Due to the quarantine restrictions imposed in Russia, ACRA expects an overall decrease in tax and non-tax revenues (TNTR) in Russian regions. For five months of this year, the Region’s income tax revenues decreased by 21%, property tax revenues by 32%, and total income tax revenue by 15% compared to the same period last year. Revenues from personal income tax and taxes on goods and services in general did not change or increased only slightly. ACRA notes that these taxes form the main share of tax revenues in the Region’s budget.

Nevertheless, the total decrease in the Region’s TNTR for the five months of 2020 was 8% compared to the same period in 2019. Given the current conditions, ACRA expects the Region to execute its budget with a deficit. The size of this deficit will depend on the Region’s ability to reduce costs, as well as on possible support from the federal budget. During the five months of this year, transfers to the Region’s budget increased by 133%, which increased total budget revenues by 26% compared to the same period last year and made it possible to execute the budget for this period with a surplus. However, the budget law does not yet provide for a significant increase transfers year-on-year (a 5% increase is planned). ACRA believes that the Region financing its budget deficit from the sources specified in the budget law is unrealistic.

Moderately low economic profile assessment. In 2015-2018, the Region’s average1 per capita gross regional product (GRP) was 50% of the national average. The ratio of average wages to the regional subsistence minimum in 2016-2019 amounted to 2.5-3.0. The combination of these two factors (GRP and wages) puts the Region’s economic profile in the third category at the initial assessment stage. Unemployment, calculated according to ILO methodology, is consistently low.

The Region’s non-government sector is well diversified. According to ACRA, the highest share of tax revenues has been at or below 7% over the last four years while being generated by different industries each year (agriculture, construction, and finance). However, the government sector’s share in total tax revenues is high (around 25% each year), which puts the Region’s economic profile in the fourth category in the final assessment.


1Hereinafter, averages are calculated according to the Methodology for Assigning Credit Ratings to Regional and Municipal Authorities of the Russian Federation.

Key assumptions

  • Urgent financial support from the federal budget if necessary;
  • 15% decrease in TNTR in 2020.

Potential outlook or rating change factors

The “Rating under revision: negative” status assumes that the rating may be changed within the next 90 days.

Removal of the “Rating under revision: negative” status and affirmation of the credit rating may be prompted by:

  • New sources to repay (refinance) the current portion of debt;
  • Changes in the debt repayment schedule (which would decrease the share of the short-term debt and the share of debt maturing in 2020-2021).

Removal of the “Rating under revision: negative” status and downgrade of the credit rating may be prompted by:

  • Lack of liquidity sources to repay (refinance) current debt.

Issue ratings

Republic of Mordovia Government Bond, 2015 (ISIN RU000A0JVV49), maturity date: October 14, 2020, issue volume: RUB 3 bln — B(RU);

Republic of Mordovia Government Bond, 2016 (ISIN RU000A0JWSQ7), maturity date: September 3, 2021, issue volume: RUB 5 bln — B(RU).

Rationale. In ACRA’s opinion, the bonds listed above are senior unsecured debt instruments, the credit ratings of which correspond to the credit rating of the Republic of Mordovia, i.e., B(RU).

Regulatory disclosure

The credit ratings have been assigned to the Republic of Mordovia and bonds (RU000A0JVV49, RU000A0JWSQ7) issued by the Republic of Mordovia 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. In the process of the credit rating assignment to the above issues, 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 Republic of Mordovia and the credit ratings of bonds (RU000A0JVV49, RU000A0JWSQ7) issued by the Republic of Mordovia were published by ACRA for the first time on November 8, 2017.

The credit rating of the Republic of Mordovia and its outlook as well as the credit ratings of bonds (ISIN RU000A0JVV49, RU000A0JWSQ7) issued by the Republic of Mordovia are expected to be revised within 90 days following the publication date of this press release in compliance with the Calendar of planned sovereign credit rating revisions and publications.

The credit ratings were assigned based on the data provided by the Republic of Mordovia, information from publicly available sources (the Ministry of Finance, the Federal State Statistics Service, the Federal Tax Service, the Commercial Case File, the Federal Treasury), as well as ACRA’s own databases. The credit ratings are solicited, and the Government of the Republic of Mordovia participated in their assignment.

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

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

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