London, 19 June 2020 -- Moody's Investors Service, ("Moody's") has
today affirmed the Ba1 long-term issuer ratings of the Moscow,
Oblast of (Oblast of Moscow) and changed the outlook to stable from positive
on these ratings.
The full list of affected credit ratings can be found at the end of this
press release.
RATINGS RATIONALE
RATIONALE FOR OUTLOOK CHANGE
The change in the outlook to stable from positive on Oblast of Moscow's
issuer ratings reflects Moody's expectation that the improvement
in the Oblast's financial position will not materialize as quickly
as previously anticipated due to the impact of the coronavirus outbreak.
The current economic shock caused by the coronavirus pandemic will lead
to lower revenues and weaker operating performance, as well as higher
deficits and debt metrics in 2020. As a result, previously
anticipated improvements in fiscal metrics will be slower to materialize
and the Oblast's debt burden will continue to grow over the next
year.
The lockdown measures implemented as a result of the pandemic have significantly
affected the tertiary sector of the region, which accounts for around
70% of the economy. In addition, lower oil prices
are also affecting the Russian economy and suppressing overall domestic
demand. The lower activity will diminish major tax proceeds such
as corporate income tax, personal income tax and property tax.
As a result, Moody's expects that in 2020, the gross
operating balance (GOB) as a percent of operating revenues will reduce
to below 5% from 10% in 2019. Expenses for social
needs and infrastructure, including those related to measures to
address the outbreak, will lead to a higher deficit in relation
to total revenues compared to the already substantial 12% deficit
recorded in 2019.
The region increased its debt burden in 2019 with net direct and indirect
debt (NDID) to operating revenues rising to 32% from 26%
in 2018 as the region financed its significant infrastructure needs.
In 2020, as a result of the projected high deficit, the debt
burden will increase further.
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and financial
market declines are creating a severe and extensive credit shock across
many sectors, regions and markets. The combined credit effects
of these developments are unprecedented. Moody's regards the coronavirus
outbreak as a social risk under its ESG framework, given the substantial
implications for public health and safety. For Oblast of Moscow,
the shock materializes as a marked reduction in economic activity and
revenue.
RATIONALE FOR RATINGS AFFIRMATION
The affirmation of the Oblast of Moscow's Ba1 issuer ratings balances
the region's dynamic local economy translating into strong revenues,
adequate long-term operating performance and its moderate debt
burden against the need to accommodate the rapidly growing population
and improve living standards, which will lead to fiscal deficits.
The issuer ratings incorporate a moderate probability that Russia,
Government of (Baa3 stable) will provide support if the region were to
face liquidity stress.
Oblast of Moscow is one of a few large economic hubs in Russia and its
economy usually outpaces the national average growth figures due to stronger
than average dynamics of investments and population inflows from other
less developed regions. As a result, Moody's expects
the economy will be able to recover more quickly from the effects of the
pandemic.
Despite the higher deficits projected in 2020, Moody's expects
that the economic recovery in 2021 will lead to stronger revenues assisting
the region to restore its operating performance. As a result,
Moody's expects GOB as a percent of operating revenues will grow
to over 7% in 2021. High infrastructure needs have been
exerting upward pressure on the region's debt burden, but
Moody's expects the debt burden to eventually stabilise at moderate
levels with NDID to operating revenues below 45% in 2021.
Short-term refinancing risks are low, given the region's
strong cashflows, good market access and prudent liquidity management.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
In Moody's view, environmental risks in the form of water and soil
pollution exert increasing pressure on the Oblast of Moscow's credit profile.
Because of limited land space, the City of Moscow historically relied
on open dumps and garbage treatment facilities situated in the Oblast
of Moscow to store and treat solid waste. Historically, the
region absorbed around 20% of Russia's solid communal waste,
and a backlog in the garbage treatment infrastructure poses environmental
and healthcare risks. The need to enhance this infrastructure will
continue to pressure spending in the region.
Social risks are material to the Oblast of Moscow's credit profile.
The inflow of population from other parts of Russia and the region's proximity
to Russia's main economic centre drive high infrastructure,
social and healthcare spending. In addition, environmental
challenges give rise to additional social tensions. Moody's
also views the coronavirus outbreak as a social risk under it ESG framework,
given its expected impact on economic growth, the associated relief
measures and consequently the impacts on Oblast of Moscow's revenues and
expenditures.
Governance and management are highly relevant for the Oblast of Moscow.
While former governments were prone to corruption scandals, the
current regional authorities follow prudent economic and financial policies,
balancing high infrastructure spending needs with healthy revenue growth
and contained borrowings. The proactive regional governance contributes
to the local economic development, and the Oblast of Moscow continues
to be an economic hub and one of the most appealing regions for local
and foreign investors.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
WHAT COULD CHANGE THE RATING - UP
A sustained decline in the debt burden with low refinancing risks,
together with a sustained improvement in the GOB, could put upward
pressure on the ratings. Additionally, an upgrade of the
sovereign rating would put upward pressure on the ratings.
WHAT COULD CHANGE THE RATING - DOWN
A sustained deterioration in the region's budgetary performance and increased
debt burden well above Moody's expectations could put downward pressure
on the Oblast of Moscow's ratings.
RATINGS AFFECTED
Affirmations:
...Issuer: Moscow, Oblast of
...LT Issuer Rating, affirmed Ba1
Outlook Actions:
...Issuer: Moscow, Oblast of
...Outlook, Changed to Stable from Positive
The specific economic indicators, as required by EU regulation,
are not available for the Moscow, Oblast of. The following
national economic indicators are relevant to the sovereign rating,
which was used as an input to this credit rating action.
GDP per capita (PPP basis, US$): 29,642 (2019
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 1.3% (2019 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 3.8%
(2019 Actual)
Gen. Gov. Financial Balance/GDP: 1.9%
(2019 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 3.8% (2019 Actual) (also
known as External Balance)
External debt/GDP: 28.9% (2019 Actual)
Economic resiliency: ba1
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
SUMMARY OF MINUTES FROM RATING COMMITTEE
On 16 June 2020, a rating committee was called to discuss the rating
of the Moscow, Oblast of. The main points raised during the
discussion were: the issuer's economic fundamentals, including
its economic strength, have not materially changed. The issuer's
fiscal or financial strength, including its debt profile,
has not materially changed.
The principal methodology used in these ratings was Regional and Local
Governments published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1091595.
Alternatively, 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 further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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, CFA
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
