Training on Forecasting, April 7–8

ACRA affirms AA-(RU) to the Lipetsk Region, changes outlook to Positive, and affirms AA-(RU) to bond issues

The outlook on the credit rating of the Lipetsk Region (hereinafter, the Region) has been changed to Positive because the Regions budget indicators have improved. The rating is supported by the high budget liquidity, high self-sufficiency of budget revenues and minimum debt load risk. The rating is restricted by the per capita economic indicators, which are lower than national average figures.

The Region is located in the Central Federal District and borders with six other regions. 1.1 million people live in the Region.

Key rating assessment factors

Budget indicators have improved. In 2017, the regional budget was executed with a surplus, which amounted to 3.8% of tax and non-tax revenues (TNTR). The budget revenues grew by 5.4% (TNTR grew by 6.3% and gratuitous receipts grew by 1.9%), while expenses increased by 1.2%. In the current year, the dynamics of budget indicators remains positive: in 4M2018, TNTR increased by 23.5% y-o-y, while expenditures grew by mere 1.3%.

Balanced debt structure. In 2017, the state debt of the Region decreased by 7.2% (RUB 1.26 billion) to RUB 16.4 billion (as of January 01, 2018). The main part (96.5%) of the direct debt is due in 2018–2024 and the remaining 3.5% is due in 2025–2034. In 2018–2019, the estimated annual repayment rate does not exceed 27% of the Region's debt.

As of June 01, 2018, the direct debt of the Region was RUB 15.19 billion, including bonds (28.3% of the debt, due in 2018–2020), bank loans (27.3% of the debt, due in 2018–2020) and budget loans (44.4% of the debt, due in 2018–2034). The volume of issued state guarantees was RUB 0.2 billion.

The budget surplus balance exceeded 52% of the direct debt as of June 01, 2018.

Key assumptions

  • Stably high share of the metal industry in the GRP profile;
  • Further development and diversification of the non-metal sector of the regional economy;
  • Mandatory budget expenditures to remain under strict control;
  • Stably high liquidity.

Potential outlook or rating change factors

The Positive outlook assumes that the rating will most likely change within the 12 to 18-month horizon.

A positive rating action may be prompted by:

  • The 2018 budget executed with a surplus or a deficit of not more than 1% of TNTR;
  • A substantial decline in the debt to operating balance ratio;
  • Personal incomes and the GRP outpacing the national averages.

A negative rating action may be prompted by:

  • A significant decline in the operating balance;
  • A significant growth in debt load and debt service costs;
  • A breach of budget loan restructuring rules of 2017.

Issue ratings

The Lipetsk Region, 35008 (ISIN RU000A0JTVZ8), maturity date: April 17, 2020, issue volume: RUB 3 bln — АА-(RU);

The Lipetsk Region, 34009 (ISIN RU000A0JUNK5), maturity date: June 04, 2019, issue volume: RUB 5 bln — АА-(RU).

Credit rating rationale. In ACRA's opinion, the above bonds are senior unsecured debt instruments, and their credit ratings are on par with the rating of the Lipetsk Region.

Regulatory disclosure

The credit ratings were assigned to the Lipetsk Region and the bonds (ISIN RU000A0JTVZ8, RU000A0JUNK5) issued by the Lipetsk Region 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. To assign credit ratings to the bond issues above, ACRA also used the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation.

The credit ratings assigned to the Lipetsk Region and the bonds (ISIN RU000A0JTVZ8, RU000A0JUNK5) issued by the Lipetsk Region were first published by ACRA on July 07, 2017, July 12, 2017 and July 12, 2017, respectively. The credit rating of the Lipetsk Region and its outlook and the credit ratings of the bonds (ISIN RU000A0JTVZ8, RU000A0JUNK5) issued by the Lipetsk Region are expected to be revised within 182 days following the rating action date (June 27, 2018) as per the 2018 Calendar of planned sovereign credit rating revisions and publications.

The credit ratings were assigned based on the data provided by the Administration of the Lipetsk Region, information from publicly available sources (the RF 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 Administration of the Lipetsk Region participated in their assignment.

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

ACRA provided no additional services to the Administration of the Lipetsk Region. No conflicts of interest were discovered in the course of credit rating assignment and affirmation.

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