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ACRA affirms Novosibirsk Region’s credit rating at A+(RU), outlook Stable, and affirms bond issues credit rating

The credit rating was assigned to the Novosibirsk Region (hereinafter, the Region) based on low level of relative debt load, smooth debt repayment schedule and consistently moderate flexibility of budget expenses amid medium level of economic development indicators versus the national average.

The Novosibirsk Region is part of the Siberian Federal District and borders Kazakhstan and four Russian regions. Almost 2% of Russia’s population live in the Region, and around 1.5% of the total GRP of Russian regions is generated in the Region. The Novosibirsk Region is a large scientific center in the Siberian Federal District. According to the Region’s estimates, these activities (scientific research and development) account for 5.5% of GRP of the Novosibirsk Region.

Key rating assessment factors

A diversified economy with highly developed transport and logistics and scientific research segments. The first of the above segments has a visible effect on the Region’s budget and contributes distinctly to the economy (around 16% of GRP and 10% of tax revenues), and the second segment has a minor effect as the commercialization of scientific and technical inventions takes a long time. GRP per capita and per capita income do not exceed 85% of the national average.

Highly self-sufficient and moderately flexible budget. The Region independently finances budget expenses:  the share of own revenues (excluding subventions) is 88%, and capital expenditures accounting for around 17% of expenses are financed primarily by the Region. While the budget’s self-sufficiency is high, the share of mandatory spending is high and the capital expenditures are low, i.e. the major portion of budget spending is represented by current needs and social expenses. According to the ACRA estimates, the above spending profile shall remain in the medium term.

Low level of relative debt load and smooth debt repayment schedule. The absolute debt size has been stable since 2015, and the debt to operating balance ratio has been around 1.6x since 2016. As at end of this year, the above ratio is projected to be at 1.7x. The Region follows a balanced approach to managing debt profile in terms of repayments and participates in fiscal loans restructuring program: the debt servicing ratio as at end of each year indicates no refinancing risks. The Region uses passive account management mechanism, and therefore, the turnover for raising and repaying debt within each year, and the debt size is less within the year than as at January 1 of each year. By virtue of the above, the Region saves on interest expenses and interest expense to operating balance ratio is consistently low.

Key assumptions

  • Retaining the share of mandatory expenses within 75% of budget expenses;
  • Keeping capital expenditures at a stable level;
  • The conservative debt policy is maintained.

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 positive rating action may be prompted by:

  • Growth of the Region’s economy and narrowing the gap between its economic indicators and the national averages;
  • Decrease of share of mandatory spending in the Region’s budget.

A negative rating action may be prompted by:

  • A slowing GRP growth in the medium term below the national average growth rates;
  • Decline in own revenues of the budget by 7% or more from the figures estimated by ACRA;
  • Increase of relative debt load.

Issue ratings

The Novosibirsk Region, 34015 (RU000A0JU963), redemption: October 30, 2018, issue volume: RUB 5 bln — A+(RU);

The Novosibirsk Region, 34016 (RU000A0JUR46), redemption: October 8, 2019, issue volume: RUB 7 bln — A+(RU);

The Novosibirsk Region, 34017 (RU000A0JWUV3), redemption: October 3, 2021, issue volume: RUB 5 bln — A+(RU);

The Novosibirsk Region, 34018 (RU000A0ZYBD3), redemption: September 27, 2022, issue volume: RUB 5 bln — A+(RU);

Credit rating rationale. In ACRA’s opinion, the below bonds issued by the Novosibirsk Region are senior unsecured debt instruments, and their credit rating is equal to the rating assigned to the Novosibirsk Region.

Regulatory disclosure

The credit ratings have been assigned to the Novosibirsk Region and to bonds issued by the Novosibirsk Region (ISIN RU000A0JU963, ISIN RU000A0JUR46, ISIN RU000A0JWUV3, ISIN RU000A0ZYBD3) 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 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.

For the first time, the credit rating of the Novosibirsk Region and credit ratings of government securities of the Novosibirsk Region (ISIN RU000A0JU963, ISIN RU000A0JUR46, ISIN RU000A0JWUV3, ISIN RU000A0ZYBD3) were published by ACRA on November 9, 2017.

The credit rating of the Novosibirsk Region and its outlook as well as the credit ratings of government securities issues of the Novosibirsk Region (RU000A0JU963, RU000A0JUR46, RU000A0JWUV3, RU000A0ZYBD3) are expected to be revised within 182 days after the rating action date (May 7, 2018) in compliance with the 2018 calendar of planned sovereign credit rating revisions and publications.

The credit ratings were assigned based on the data provided by the Novosibirsk Region, 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 Novosibirsk Region Government participated in their assignment.

No material discrepancies between the data provided and the data officially disclosed by the Novosibirsk Region in its financial report have been discovered.

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

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