ACRA affirms AAA(RU) to the Yamalo-Nenets Autonomous Okrug, outlook Stable, and AAA(RU) to bond issues

The credit rating of the Yamalo-Nenets Autonomous Okrug (hereinafter, the Region) is based on its minimal debt load, high self-sufficiency, sustainability and liquidity of the budget, and high performance indicators of the regional economy.

A standalone administrative entity of the Russian Federation, the Region is also part of the Tyumen Region1 located in the Ural Federal District. The Region is a Far North territory with more than half of its area lying beyond the Arctic Circle. In 2018, the Region’s GRP amounted to 3.6% of the total GRP of all administrative entities of Russia, and the Region’s population was about 0.4% of the Russian population.

1 A certain share of profit tax revenues collected in the Region goes to the budget of the Tyumen Region (set to 29.5% by the agreement between the Tyumen Region and YaNAO).

Key rating assessment factors

The Region is a contributor to the federal budget, accounting for more than 80% of Russia’s natural gas output. The Region’s economic profile assessment is determined by the high GRP per capita: in 2018, the Region ranked second among Russian regions; in 2015–2018, the average2 value of this indicator was 9.3 times higher than the average value for the national economy.

In 2016–2019, the ratio of the average wage to the average regional subsistence minimum grew steadily from 5x to 5.8x, and the unemployment rate estimated as per the ILO’s methodology was lower than the national average and shrank from 2.6% to 1.9%.

The Region’s economy is centered on the extraction and sale of hydrocarbons, which generates up to 46% of tax revenues.

The Region is one of the core contributors to the federal budget. For eight months of 2020, 81% of taxes and charges collected in the Region was transferred to the federal budget with just 19% remaining in the consolidated budget of the Region. In the same period, the Region’s contribution to the Russian budget from mineral extraction tax amounted to 19% (second among Russian regions).

Well-balanced budget with high self-sufficiency and flexibility. The regional budget’s operating efficiency is high, as the average ratio of the current operating balance to current revenues has been sustainably positive and should amount to 26.6% for the period from 2017 to 2021.

Budget revenues (excluding subventions) mostly include internal revenues. In 2017–2021, the average ratio of internal revenues to total revenues (minus subventions) should amount to 94.6%.

The structure of the Region’s tax and non-tax revenues (TNTR) is dominated by property tax revenues, whose share should average 38.9% in 2016–2020; the share of profit tax is expected to reach 35.9%, and that of personal income tax — 21.3%. Property tax revenues are more resilient to market changes; therefore, their high share in the Region’s tax revenues contributes to the stability of budget revenues.

The regional budget is highly flexible due to the high average share of capital expenditures in total expenditures, which should be 28.9% in 2017–2021. More than 90% of capital expenditures are covered by the Region on its own.

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

Over nine months of 2020, profit tax revenues declined by 52.5% year-on-year, however, property tax and personal income tax revenues grew by 3.0% and 11.6%, respectively. ACRA expects the Region’s TNTR to decline by approximately 19% in 2020. In addition, the regional budget’s total expenditures may grow by 13% due to the epidemiological situation, which will lead to a budget deficit at 14% of TNTR. The flexibility of budget expenditures, very low debt burden and a significant amount of accumulated liquidity will support the budget amid declining revenues.

Minimal debt load. At the beginning of 2020, the ratio of debt to current revenues was 7.3%. ACRA expects this ratio to remain low by the end of 2020, despite a possible reduction in regional budget revenues.

As of October 1, 2020, the Region’s debt portfolio of RUB 16.1 bln was represented by bonds (80.5%) and state guarantees (19.5%). The debt refinancing risk is minimal.

Public debt servicing costs are not burdensome for the budget (the ratio of average interest expenses in 2017–2021 to the average total budget expenditures excluding subventions should amount to 0.7%). In 2019, interest expenses were fully covered by the Region’s interest income.

The debt burden of municipalities was consistently low in 2016–2019: the ratio of total debt to aggregate TNTR of municipalities amounted to 0.3% in 2019.

The volume of accumulated liquidity is many times greater than the Region’s debts. The Region has a significant amount of funds held in budget accounts and deposits, which as of October 1, 2020, was 5.8 times higher than the total debt and 5.7 higher than the average monthly budget expenditures for nine months of 2020.

Key assumptions

  • Maintaining high social economic indicators;
  • TNTR declining by no more than 19% in 2020 compared to 2019;
  • Lower budget expenditures amid declining TNTR;
  • Use of funds held on budget accounts to cover the budget deficit without increasing the debt burden.

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:

  • Level of liquidity falling below the volume of monthly expenditures;
  • Current expenditures exceeding current revenues by 12%;
  • A significant change in inter-budget relations in Russia.

Issue ratings

YaNAO, 35004 (ISIN RU000A0ZYM47), maturity date: December 25, 2024, issue volume: RUB 5.5 bln — ААА(RU).

YaNAO, 35003 (ISIN RU000A0ZYD55), maturity date: October 18, 2022, issue volume: RUB 1 bln — ААА(RU).

YaNAO, 35002 (ISIN RU000A0JX0Z8), maturity date: December 6, 2023, issue volume: RUB 20 bln — ААА(RU).

Rationale. In ACRA’s opinion, the bonds issued by the Yamalo-Nenets Autonomous Okrug are senior unsecured debt instruments, and their credit rating is equal to the rating assigned to the Yamalo-Nenets Autonomous Okrug.

Regulatory disclosure

The credit ratings have been assigned to the Yamalo-Nenets Autonomous Okrug and bonds issued by the Yamalo-Nenets Autonomous Okrug (ISIN RU000A0ZYM47, RU000A0ZYD55, RU000A0JX0Z8) 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. The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale for the Russian Federation was also applied to assign credit ratings to the bond issues listed above.

The credit ratings of the Yamalo-Nenets Autonomous Okrug and the bonds (ISIN RU000A0ZYM47, RU000A0ZYD55, RU000A0JX0Z8) issued by the Yamalo-Nenets Autonomous Okrug were published by ACRA for the first time on June 27, 2018. The credit rating of the Yamalo-Nenets Autonomous Okrug and its outlook as well as the credit ratings of its bond issues (ISIN RU000A0ZYM47, RU000A0ZYD55, RU000A0JX0Z8) are expected to be revised within 182 days following the publication date of this press release in accordance with the Calendar of planned sovereign credit rating revisions and publications.

The credit ratings were assigned based on data provided by the Yamalo-Nenets Autonomous Okrug, 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 Yamalo-Nenets Autonomous Okrug participated in their assignment.

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

ACRA provided no additional services to the Government of the Yamalo-Nenets Autonomous Okrug. No conflicts of interest were discovered in the course of credit rating assignment.

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