London, 25 July 2019 -- Moody's Investors Service, ("Moody's") has today changed to positive
from stable the outlooks on the issuer ratings of Samara, Oblast
of (Ba2), Nizhniy Novgorod, Oblast (Ba3), Krasnodar,
Krai of (Ba3) and Krasnodar, City of (B1). At the same time,
Moody's has affirmed the issuer ratings of these four sub-sovereigns.
The changes in outlooks reflect Moody's view regarding these regions'
healthy revenue growth and the conservative budgetary and debt management
policies resulting in reducing debt levels and refinancing risks.
The year-to-date strong progress in tax administration and
excellent performance in corporate and personal income taxes made Moody's
revise previous expectations regarding these regions' pace of deleveraging.
In addition, the Russian federal government's recent measures
to ensure regions are effectively targeting economic growth and social
improvements while tightly controlling budget deficits and new borrowings
provide better predictability of the regions' future financial policy.
The full list of affected issuers and credit ratings can be found at the
end of this press release.
RATINGS RATIONALE
-- SAMARA, OBLAST OF
The affirmation of the issuer's Ba2 rating and the change of the
outlook to positive from stable reflects stronger than previously expected
revenue growth that together with a tight control over expenditures enables
faster reduction in leverage. A longer track record of the prevailing
trends will allow not only to decrease leverage and secure lower refinancing
risks but also improves policy predictability, helping to decrease
the region's historically elevated financial metrics' volatility.
A recent track record of conservative budgetary and debt management has
enabled the region to reduce leverage. As of year-end 2018,
the region's ratio of net direct and indirect debt (NDID) to operating
revenues totaled 34%, having decreased from 50% in
2016, and Moody's expects this ratio to further drop below
30% in 2020. Along with the ongoing rapid deleveraging,
the region's authorities have also accumulated a larger liquidity
buffer that, as of year-end 2018, exceeded 6%
of the region's operating revenues. The region also improved
its debt structure, being more reliant on the long-term debt
instruments. A longer track record of such conservative stance
could warrant an upgrade of the issuer ratings in the next 12 to 18 months.
-- NIZHNIY NOVGOROD, OBLAST
The affirmation of the issuer's Ba3 rating and the change of the
outlook to positive from stable reflects stronger than previously expected
revenue growth and Moody's expectations of faster debt metrics improvements
thanks to the ongoing conservative budgetary stance and better tax administration.
The ongoing revenue growth and authorities' tight control over operating
expenditures are expected to further reduce leverage and refinancing risk.
At year-end 2018, the region's ratio of NDID to operating
revenues was 48% (against 64% in 2015), and Moody's
expects this ratio to drop below 45% in 2020. Moreover,
the region's authorities accumulated a larger liquidity buffer that
exceeded 8% of the region's operating revenues (at year-end
2018) and are currently improving the region's debt structure to
be more reliant on longer-term debt instruments. Further
sustained improvements in the region's financial metrics could warrant
an upgrade of the issuer ratings in the next 12 to 18 months.
-- KRASNODAR, KRAI OF
The affirmation of the issuer's Ba3 rating and the change of the
outlook to positive from stable reflects Moody's expectations of
a further debt metrics improvements thanks to the ongoing conservative
budgetary stance. Significant revenue growth combined with conservative
debt management should further reduce leverage and refinancing risk in
the next two to three years. Moody's expects the NDID to
revenue ratio to reach 45% in 2020 against 57% at year-end
2018. The regional authorities also built up a liquidity buffer
representing 11% of the region's operating revenues at year-end
2018. They are also less reliant on short-term debt.
Further sustained improvements in the region's financial metrics
could warrant an upgrade of the issuer ratings in the next 12 to 18 months.
-- KRASNODAR, CITY OF
The affirmation of the issuer's B1 rating and the change of the
outlook to positive from stable reflects the city's fiscal consolidation
which resulted in positive operating balance from 2017. Moreover,
the ongoing support received from the regional authorities (Krasnodar,
Krai of) in the form of budget loans will help to minimize refinancing
risks and decrease the city's debt service costs.
--WHAT COULD CHANGE THE RATINGS UP/DOWN
A longer track record of sustained improvements in leverage and refinancing
risks could trigger Moody's to upgrade the issuer ratings of these
four sub-sovereigns. The upgrade in the sovereign rating
could also exert upward credit pressure on the ratings.
Given the recent change of the outlook to positive, negative credit
pressures are unlikely to develop for the issuers covered in today's
rating action. At the same time, any unexpected deterioration
in the credit metrics of these sub-sovereigns, i.e.
unexpected revenue declines or expenditure pressure resulting into opposite
debt trends, could exert downward pressure on their ratings or outlooks.
-- RATINGS AFFECTED
Affirmations:
...Issuer: Krasnodar, Krai of
...LT Issuer Rating, affirmed Ba3
...Issuer: Nizhniy Novgorod, Oblast
....LT Issuer Rating, affirmed Ba3
...Issuer: Samara, Oblast of
...LT Issuer Rating, affirmed Ba2
...Senior Unsecured Regular Bond/Debenture,
affirmed Ba2
...Issuer: Krasnodar, City of
...LT Issuer Rating, Affirmed B1
Outlook Actions:
...Issuer: Samara, Oblast of
...Outlook, Changed to Positive from Stable
...Issuer: Krasnodar, Krai of
....Outlook, Changed To Positive From
Stable
...Issuer: Nizhniy Novgorod, Oblast
...Outlook, Changed to Positive from Stable
...Issuer: Krasnodar, City of
...Outlook, Changed to Positive from Stable
The publication of this rating action deviates from the previously scheduled
release date in the sovereign calendar published on www.moodys.com.
The reason for the deviation reflects Moody's recognition of the ongoing
rapid regions' revenue growth as reflected in their recently financial
statements for the first five months of 2019.
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$): 29,267 (2018
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 2.3% (2018 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 4.3%
(2018 Actual)
Gen. Gov. Financial Balance/GDP: 2.9%
(2018 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 6.9% (2018 Actual) (also
known as External Balance)
External debt/GDP: [not available]
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 23 July 2019, a rating committee was called to discuss the rating
of the Krasnodar, City of; Krasnodar, Krai of; Nizhniy
Novgorod, Oblast; Samara, Oblast of. The main
points raised during the discussion were: The issuer's governance
and/or management, have materially increased. The issuer's
fiscal or financial strength, including its debt profile,
has materially increased. An analysis of this issuer, relative
to its peers, indicates that a repositioning of its rating would
be appropriate.
The principal methodology used in these ratings was Regional and Local
Governments published in January 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
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.
Semyon Isakov
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
