London, 10 December 2021 -- Moody's Investors Service ("Moody's") has today
upgraded the long-term issuer rating of Nizhniy Novgorod,
Oblast (Nizhniy Novgorod) to Ba2 from Ba3 and the outlook was changed
to stable from positive.
The rating upgrade of Nizhniy Novgorod's rating reflects Moody's
expectations that the region's good budgetary management will enable
it to maintain its solid budgetary metrics, moderate debt burden
and low refinancing risks.
RATINGS RATIONALE
RATIONALE FOR THE RATING UPGRADE
The rating upgrade reflects Moody's expectations that the region will
continue to pursue its prudent budgetary policy and as a result,
its operating performance will improve as its economy recovers and its
debt burden will resume its gradual decline over the next few years.
Moody's also expects the region to maintain low refinancing risks.
Despite pressure on tax revenues from the effects of the pandemic,
the region maintained a moderate deficit of 6% of total revenues
while its debt burden remained relatively stable in 2020, supported
by strong federal government transfers and a strong control over operating
and capital spending. In 2020, tax revenues declined by 1%
while the region experienced upward pressure from coronavirus related
expenses. Nevertheless, Nizhniy Novgorod was able to record
a slim operating surplus, with gross operating balance to operating
revenue ratio at 0.2% in 2020. This is projected
to strengthen above 7% in 2021 and 2022 on the back of the current
economic recovery.
While the debt burden is projected to increase in 2021, it will
remain moderate at 48% of operating revenues in 2021 and is then
expected to resume its decline to around 40% in 2023. The
increase in debt in 2021 will also be accompanied by growth in liquidity
(estimated at 10% of operating revenues). Moody's
expects the region will maintain its improved debt structure following
the repayment of a significant part of market debt with new long-term
budget loans in 2021 as part of a Russian federal government program.
Annual debt repayments are expected not to exceed 5% of operating
revenues from end-2021, compared to 15% a year before.
Nizhniy Novgorod's Baseline Credit Assessment was also upgraded to ba2
from ba3. The final issuer rating of Ba2 incorporates a low likelihood
of support from the Government of Russia (Baa3 stable).
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's view that the region will continue
its prudent budgetary management resulting in good operating performance
and a moderate debt burden while refinancing risks will remain low over
the next 12-18 months.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Nizhniy Novgorod's ESG Credit Impact Score is moderately negative (CIS-3),
reflecting moderate exposure to environmental and social risks and a moderately
negative governance issuer profile score.
Moody's assesses Nizhniy Novgorod's exposure to environmental risks as
moderately negative (E-3 issuer profile score), reflecting
moderately negative exposure to carbon transition risk, water management
and physical climate risk. Exposure to social risks is moderately
negative (S-3 issuer profile score), driven by unfavourable
demographic trends, which limit growth potential. Close proximity
to larger economic centres of the country and comparatively lower labour
income puts additional pressure on migration flows of the region.
As most other Russian regions, Nizhniy Novgorod also faces moderate
social risks from relatively low income growth and uneven access to basic
services and education. The influence of Governance on Nizhniy
Novgorod's credit profile is moderately negative (G-3 issuer profile),
in line with assessment of Governance in Russia, reflecting the
risks that are mainly related to weaknesses in the rule of law,
property rights and control of corruption, as indicated in relatively
low scores on international surveys.
The specific economic indicators, as required by UK regulation,
are not available for Nizhniy Novgorod, Oblast. 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$): 28,053 (2020
Actual) (also known as Per Capita Income)
Real GDP growth (% change): -3% (2020 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 4.9%
(2020 Actual)
Gen. Gov. Financial Balance/GDP: -4%
(2020 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 2.4% (2020 Actual) (also
known as External Balance)
External debt/GDP: 31.5% (2020 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 7 December 2021, a rating committee was called to discuss the
ratings of Nizhniy Novgorod, Oblast. 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.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The stable outlook on Nizhniy Novgorod indicates that a change in the
rating is unlikely in the near term. Over time, positive
pressure on the rating could emerge from a more rapid and pronounced debt
reduction than Moody's currently expects, accompanied by stronger
budgetary performance than the rating agency's baseline.
At the same time, markedly weaker fiscal and debt metrics for this
sub-sovereign than Moody's currently expects, could put downward
pressure on its rating or point to a negative outlook.
An upgrade or a downgrade of the sovereign rating could also exert upward
or downward credit pressure on the regional government's ratings.
The principal methodology used in this rating 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
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same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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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
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affected the rating. For further information please see the ratings
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For any affected securities or rated entities receiving direct credit
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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 rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
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for Designating and Assigning Unsolicited Credit Ratings available on
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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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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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
MD - Sub Sovereigns
Sub-Sovereign Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
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