Actions follow expected improvement of sovereign creditworthiness
NOTE: On February 21, 2018, the press release was corrected as follows: At the end of the Press Release, the releasing office was changed to Moody's Investors Service Ltd. Revised release follows.
London, 29 January 2018 -- Moody's Investors Service, ("Moody's") has
changed to positive from stable the outlooks on the ratings of 11 regional
and local governments (RLGs) in Russia and two government-related
issuers (GRIs), reflecting reduced systemic risk stemming from the
sovereign's credit profile. At the same time, Moody's
affirmed the ratings of these 13 issuers. Concurrently, Moody's
has changed outlooks to stable from negative for four RLGs and affirmed
their ratings. In addition, it affirmed the ratings of one
RLG and maintained the stable outlook.
These rating actions follow the improvement of Russia's credit profile
as captured by Moody's change of outlook to positive from stable on Russia's
government rating (Ba1) on 25 January 2018. For additional information,
please refer to the related announcement: https://www.moodys.com/research/Moodys-changes-outlook-on-Russias-ratings-to-positive-from-stable--PR_378221.
Specifically, Moody's has changed the outlook to positive from stable
and affirmed the ratings of the following 11 RLGs: Moscow,
City of (Ba1), St. Petersburg, City of (Ba1),
Bashkortostan, Republic of (Ba2), Tatarstan, Republic
of (Ba2), Autonomous-Okrug (region) of Khanty-Mansiysk
(Ba2), Moscow, Oblast of (Ba2), Samara, Oblast
of (Ba3), Chuvashia, Republic of (Ba3), Krasnodar,
Krai of (B1), Krasnoyarsk, Krai of (B1) and Nizhniy Novgorod,
Oblast of (B1).
Additionally, the ratings were affirmed and the outlooks were changed
to positive from stable of the following two GRIs: SUE Vodokanal
of St. Petersburg (Ba2) and OJSC Western High-Speed Diameter
(Ba3).
Conversely, Moody's changed the outlook to stable from negative
and affirmed the ratings of the following four RLGs: Omsk,
Oblast of (Ba3), Komi, Republic of (B1), Krasnodar,
City of (B1) and Omsk, City of (B1). In addition, the
ratings of Volgograd, City of (B2) were affirmed and stable outlook
maintained.
The full list of affected issuers and credit ratings can be found at the
end of this press release.
RATINGS RATIONALE
-- RATIONALE FOR OUTLOOK CHANGE TO POSITIVE FROM STABLE
AND AFFIRMATION OF 11 RLGs' AND 2 GRIs' RATINGS
The outlook change to positive from stable of Moscow, City of,
St. Petersburg, City of, Bashkortostan, Republic
of, Tatarstan, Republic of, Autonomous-Okrug
(region) of Khanty-Mansiysk, Moscow, Oblast of,
Samara, Oblast of, Chuvashia, Republic of, Krasnoyarsk,
Krai of, Krasnodar, Krai of and Nizhniy Novgorod, Oblast
of reflects the decrease in systemic pressure following the change to
positive outlook for Russia.
The revenue base of Russian RLGs will likely grow in 2018 given the recovery
of economic performance, which will help sustain RLGs' budgets.
Real GDP growth is estimated to have been 1.7% in 2017 and
is forecasted at 1.6% for 2018 compared to -0.2%
in 2016. Stronger tax collection and a number of tax initiatives
positively influencing RLGs' revenues also added to higher revenue
bases. Stronger revenues and tighter cost controls will result
in the improvement of these issuers' performances as reflected in
their current budgets which are more conservative compared to previous
years. Federal government's stricter control and measures
to foster improvement of the RLGs' performance already constrained
sector-wide debt burden which Moody's expects to decrease
in 2018.
Furthermore, debt affordability has improved and is supported by
ongoing lending from state-owned banks. The abundant liquidity
of the banking sector (the main donor of fiscal resources for Russian
RLGs) has reduced borrowing rates for RLGs while loan supply has increased.
Higher ability of the sovereign government to provide system-wide
on-going support also exerts positive pressure on the issuers'
credit standing. The large federal government programme for refinancing
market debt with cheap budget loans has significantly eased the refinancing
pressure of the regions. As a result, the share of budget
loans in the debt structure of the sector has materially increased since
2014. In 2017, the federal government announced a restructuring
programme of the budget loans that extended their maturities to seven
to twelve years from one to five years originally.
The affirmation of the issuer ratings with positive outlooks of SUE Vodokanal
of St. Petersburg and the backed senior unsecured rating of OJSC
Western High-Speed Diameter reflects their status as GRIs fully
owned by the St. Petersburg government and their strong credit
linkages with the City of St. Petersburg. OJSC Western High-Speed
Diameter also benefits from a guarantee on its principal payments from
the Russian government.
--RATIONALE FOR AFFIRMATION OF RATINGS AND OUTLOOK CHANGE
TO STABLE FROM NEGATIVE FOR 4 RLGs
The affirmation of the ratings of Omsk, Oblast of reflects stabilisation
of its financial performance and debt metrics. The deficit is estimated
at below 2% of total revenues in 2017 compared to 7% in
2016 while the debt burden has decreased to around 77% of own source
revenues in 2017 from 80% in 2016. The stable outlook reflects
that the positive pressure arising from the reduced systemic risk is offset
by the significant debt burden and continuing weak operating balances.
The affirmation of the rating with stable outlook on Omsk, City
of reflects the linkages of the city with Omsk, Oblast of.
The city's revenue base depends to a large extent on transfers from Oblast,
which totalled around 50% of city revenues for the last three years.
The stabilisation in fiscal conditions of the Oblast is expected to maintain
the level of transfers to the city at adequate levels. Moody's
forecasts that the stable operating environment will support the city's
own-source revenues and debt affordability, maintaining credit
pressures at current levels.
The affirmation of the ratings of Komi, Republic of reflects the
continued relatively high debt burden despite declining recently.
Moody's forecasts that the republic ended a trend seen over the
past six years of significant budgetary deficits. Revenues benefited
from higher taxes from the key taxpayers while expense consolidation efforts
also contributed to such improvement. The debt burden has declined
to an estimated 60% of own-source revenues in 2017 compared
to 78% a year earlier. However, although the republic
adopted conservative budgets, revenues remain volatile given their
dependence on receipts from key taxpayers which could prevent the republic
from achieving budgetary targets. These weaknesses offset the positive
pressure from the decreasing systemic risk underpinning the stable outlook
on the ratings.
The affirmation of the rating of Krasnodar, City of reflects repayments
of sizeable overdue payables in 2017. The city benefited from a
significant increase in transfers from Krasnodar, Krai of,
despite the latter's own consolidation measures. Such support,
together with stronger own-source revenues, enabled the city
to maintain performance at around historic levels (with estimated deficit
at below 4% of total revenues in 2017), and avoided growth
in its debt burden and pressure on liquidity. The stable outlook
reflects the fact that the anticipated decrease in systemic risk will
be offset by continued modest fiscal performance.
-- RATIONALE FOR AFFIRMATION OF RATINGS WITH STABLE OUTLOOK
FOR VOLGOGRAD, CITY OF
The affirmation of the rating and stable outlook of Volgograd, City
of reflects the very high debt burden with significant near-term
refinancing pressure. Moody's notes that while the city's
fiscal performance will improve going forward as it adopts conservative
budgets it will not enable Volgograd to significantly reduce its debt
burden over the course of the next 12-18 months. The net
direct and indirect debt to own-source revenue is estimated at
around 1.5x in 2017 (1.5x in 2016). These credit
pressures are likely to remain despite the decreasing systemic pressure.
--WHAT COULD CHANGE THE RATINGS UP/DOWN
Moscow, City of, St. Petersburg, City of,
Bashkortostan, Republic of, Tatarstan, Republic of,
Autonomous-Okrug (region) of Khanty-Mansiysk, Moscow,
Oblast of and the two GRIs could experience upward rating pressure in
case of upward changes in the sovereign rating, provided their budget
performances do not deteriorate considerably. For other entities
with positive outlooks, upward pressure could arise from both upward
changes in the sovereign rating as well as their ability to sustain improved
financial performances and debt metrics.
For Komi, Republic of the positive pressure could stem from its
proven ability to sustain the track record of improved performance.
For other entities with a stable outlook a rating upgrade would require
an improvement in their financial performance.
Given positive and stable outlooks for the RLGs and GRIs the negative
pressure is not expected. At the same time, any unexpected
deterioration in the credit metrics of sub-sovereigns, could
exert downward pressure on ratings or outlooks.
-- RATINGS AFFECTED
-- THE RATINGS OF THE FOLLOWING 13 ISSUERS WERE AFFIRMED
WITH POSITIVE OUTLOOK
Affirmations:
..Issuer: Bashkortostan, Republic of
....LT Issuer Rating, Affirmed Ba2
..Issuer: Chuvashia, Republic of
....LT Issuer Rating, Affirmed Ba3
....Senior Unsecured Regular Bond/Debenture,
Affirmed Ba3
..Issuer: Khanty-Mansiysk AO
....LT Issuer Rating, Affirmed Ba2
..Issuer: Krasnodar, Krai of
....LT Issuer Rating, Affirmed B1
..Issuer: Krasnoyarsk, Krai of
....LT Issuer Rating, Affirmed B1
..Issuer: Moscow, City of
....LT Issuer Rating, Affirmed Ba1
..Issuer: Moscow, Oblast of
....LT Issuer Rating, Affirmed Ba2
..Issuer: Nizhniy Novgorod, Oblast
....LT Issuer Rating, Affirmed B1
..Issuer: OJSC Western High-Speed Diameter
...Backed Senior Unsecured Regular Bond/Debenture,
Affirmed Ba3
..Issuer: Samara, Oblast of
....LT Issuer Rating, Affirmed Ba3
....Senior Unsecured Regular Bond/Debenture,
Affirmed Ba3
..Issuer: St. Petersburg, City of
....LT Issuer Rating, Affirmed Ba1
..Issuer: SUE Vodokanal of St. Petersburg
....LT Issuer Rating, Affirmed Ba2
..Issuer: Tatarstan, Republic of
....LT Issuer Rating, Affirmed Ba2
Outlook Actions:
..Issuer: Bashkortostan, Republic of
....Outlook, Changed To Positive From
Stable
..Issuer: Chuvashia, Republic of
....Outlook, Changed To Positive From
Stable
..Issuer: Khanty-Mansiysk AO
....Outlook, Changed To Positive From
Stable
..Issuer: Krasnodar, Krai of
....Outlook, Changed To Positive From
Stable
..Issuer: Krasnoyarsk, Krai of
....Outlook, Changed To Positive From
Stable
..Issuer: Moscow, City of
....Outlook, Changed To Positive From
Stable
..Issuer: Moscow, Oblast of
....Outlook, Changed To Positive From
Stable
..Issuer: Nizhniy Novgorod, Oblast
....Outlook, Changed To Positive From
Stable
..Issuer: OJSC Western High-Speed Diameter
....Outlook, Changed To Positive From
Stable
..Issuer: Samara, Oblast of
....Outlook, Changed To Positive From
Stable
..Issuer: St. Petersburg, City of
....Outlook, Changed To Positive From
Stable
..Issuer: SUE Vodokanal of St. Petersburg
....Outlook, Changed To Positive From
Stable
..Issuer: Tatarstan, Republic of
....Outlook, Changed To Positive From
Stable
-- THE RATINGS OF THE FOLLOWING 5 ISSUERS WERE AFFIRMED
WITH STABLE OUTLOOK
Affirmations:
..Issuer: Komi, Republic of
....LT Issuer Rating, Affirmed B1
..Issuer: Krasnodar, City of
....LT Issuer Rating , Affirmed B1
..Issuer: Omsk, City of
....LT Issuer Rating, Affirmed B1
..Issuer: Omsk, Oblast of
.... LT Issuer Rating, Affirmed Ba3
..Issuer: Volgograd, City of
... LT Issuer Rating, Affirmed B2
Outlook Actions:
..Issuer: Komi, Republic of
....Outlook, Changed To Stable From
Negative
..Issuer: Krasnodar, City of
....Outlook, Changed To Stable From
Negative
..Issuer: Omsk, City of
....Outlook, Changed To Stable From
Negative
..Issuer: Omsk, Oblast of
....Outlook, Changed To Stable From
Negative
..Issuer: Volgograd, City of
....Outlook, Remains Stable
The sovereign action required the publication of this credit rating action
on a date that deviates from the previously scheduled release date in
the sovereign release calendar, published on www.moodys.com.
The specific economic indicators, as required by EU regulation,
are not available for these entities. The following national economic
indicators are relevant to the sovereign rating, which was used
as an input to this credit rating action.
Sovereign Issuer: Russia, Government of
GDP per capita (PPP basis, US$): 26,926 (2016
Actual) (also known as Per Capita Income)
Real GDP growth (% change): -0.2% (2016
Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 5.4%
(2016 Actual)
Gen. Gov. Financial Balance/GDP: -3.7%
(2016 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 2% (2016 Actual) (also known
as External Balance)
External debt/GDP: 40.1% (2016 Actual)
Level of economic development: Moderate level of economic resilience
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On 25 January 2018, a rating committee was called to discuss the
ratings of the Russian sub-sovereign entities. The main
points raised during the discussion were: The systemic risk in which
the issuers operate has materially decreased. Pressure from idiosyncratic
factors for some entities still remains.
The principal methodology used in rating Moscow, City of,
St. Petersburg, City of, Bashkortostan, Republic
of, Tatarstan, Republic of, Autonomous-Okrug
(region) of Khanty-Mansiysk, Moscow, Oblast of,
Samara, Oblast of, Chuvashia, Republic of, Krasnodar,
City of, Krasnodar, Krai of, Nizhniy Novgorod,
Oblast of, Omsk, Oblast of, Komi, Republic of,
Volgograd, City of, Krasnoyarsk, Krai of and Omsk,
City of was Regional and Local Governments published in January 2018.
The principal methodology used in rating SUE Vodokanal of St. Petersburg
and OJSC Western High-Speed Diameter was Government-Related
Issuers published in August 2017.
Please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vladlen Kuznetsov
Vice President - Senior Analyst
Sub-Sovereign Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Mauro Crisafulli
Associate Managing Director
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
