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Rating Action:

Moody's upgrades Samara Oblast, Krasnoyarsk Krai, outlooks stable

11 Jun 2021

London, 11 June 2021 -- Moody's Investors Service ("Moody's") has today upgraded the long-term issuer and senior unsecured ratings of Samara, Oblast of (Samara) to Ba1 from Ba2 and the long-term issuer rating of Krasnoyarsk, Krai of (Krasnoyarsk) to Ba2 from Ba3. The outlook on the issuer ratings of Samara has been changed to stable from positive. The outlook on Krasnoyarsk's issuer rating remains stable.

The rating upgrade of Samara reflects Moody's expectations that its good budgetary management will enable it to maintain its strong budgetary metrics and low debt burden. Concurrently the upgrade of Krasnoyarsk reflects Moody's assessment that the lower appetite to debt will continue and the region will maintain good budgetary performance supported by tax revenues growth.

A full list of affected ratings is provided towards the end of this press release.

RATINGS RATIONALE

RATIONALE FOR RATINGS UPGRADE

-- SAMARA, OBLAST OF

The rating upgrade reflects Moody's expectations that the region will continue to pursue its effective and prudent budgetary policy. As a result, its debt burden will continue its gradual decline over the next few years, while operating performance will remain solid, supported by economic recovery.

Despite pressure on tax revenues from negative economic trends, Samara achieved a balanced budget in 2020, thanks to ad hoc federal government transfers and tight grip on operating and capital spending.

Taxes dropped by 3%, offset by ad hoc federal transfers to compensate for revenue shortfall and additional expenses to address higher spending related to coronavirus pandemics. On the expenditure side Samara was able to contain cost growth by employing cuts to non-primary expenses, such as spending on mass events, exhibitions and delaying some capital projects. The effective anti-crisis budget measures enabled the administration to preserve its operating performance at sound level, with gross operating balance to operating revenues ratio at 8% in 2020. Moody's expects that the current economic recovery translating into stronger revenues will bring Samara's gross operating balance to operating revenue ratio to historically high levels (above 11-12%) in 2021 and thereafter.

As a result, the region's net direct and indirect debt declined to 26% of operating revenues in 2020 from 30% in 2019, and is expected to further trend down below 20% in 2022, which is low by international standards. The region has also improved its debt structure, increasing the share of longer-term debt instruments in total direct debt reducing further already low refinancing risks.

Samara's Baseline Credit Assessment was upgraded to ba1 from ba2. The final issuer rating of Ba1 incorporates a low likelihood of support from the Government of Russia (Baa3 stable).

-- KRASNOYARSK, KRAI OF

The rating upgrade reflects Moody's expectations that Krasnoyarsk's operating performance will improve, supported by careful budgetary management and recovery of its strong economy. Furthermore Moody's expects the region to reduce its net direct and indirect debt to operating revenue ratio to 22-24% in 2021 from 29% in 2020 and maintain it at this modest level in 2022.

Despite pressure on revenues from lower proceeds from its key taxpayers the region maintained a balanced performance thanks to higher ad-hoc transfers from the federal government (which increased by 62% in 2020) and tighter control on spending. In 2020, tax revenues declined by 8% while the region experienced an upward pressure from coronavirus related expenses. Nevertheless, Krasnoyarsk's operating performance remained sound, with gross operating balance to operating revenue ratio at 8% in 2020 that will be further strengthened above 11% in 2021 and 2022. Positive budgetary results will enable the region to keep the debt burden constrained.

The refinancing risks are low due to favourable debt profile: annual debt repayments do not exceed 5% of operating revenues and are fully covered by the liquidity cushion.

Krasnoyarsk's Baseline Credit Assessment was upgraded to ba2 from ba3. The final issuer rating of Ba2 incorporates a low likelihood of support from the Government of Russia.

RATIONALE FOR STABLE OUTLOOKS

The stable rating outlooks reflect Moody's view that the two regions will continue their conservative budgetary management resulting in strong operating performances and modest debt burdens while refinancing risks will remain low in the next 12-18 months.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

For Samara and Krasnoyarsk most part of environmental problems are not significant for their credit profiles. Majority of the expenditure for pollution and environmental safety are covered by the Federal Government or the companies causing negative externalities. Although environmental problems including air, water and land pollution are discussed and accounted in the policy of the regional authorities, environmental expenditures comprise less than 5% of the budget expenditure. Negative effects on Krasnoyarsk's tax revenues from weaker financial results of its key taxpayer (MMC Norilsk Nickel, PJSC (Baa2 negative)) which will suffer from fines it has to pay for its pollution case will likely be compensated by the central government.

For Krasnoyarsk and Samara social risks exist but are not significant. Income inequality, migration and urbanisation, and aging demographic trends are present in Russia. Samara is less divergent from average salary and demographic trends. The strong economy of Krasnoyarsk ensures salaries which are above country average and positive migration.

For the two regions, governance factors are material for the ratings. Prudent management policies and debt reduction policy allowed for a decrease in credit risks in recent years. Conservative budget planning and long-term expenditure plans allow these governments to consolidate their budgets and reduce debt.

The specific economic indicators, as required by UK 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$): 27,903 (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: -4.1% (2020 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: 2.3% (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 8 June 2021, a rating committee was called to discuss the ratings of Krasnoyarsk, Krai of and Samara, Oblast of. The main points raised during the discussion were: The issuers' governance and/or management, have materially increased. The issuers' fiscal or financial strength, including its debt profile, has materially increased.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The stable outlooks on Krasnoyarsk's and Samara's ratings indicate that a change in the ratings is unlikely in the near term. Over time, positive pressure could emerge from a more rapid and pronounced debt reduction than Moody's currently expects, accompanied by stronger budgetary performances than in the rating agency's baseline.

At the same time, markedly weaker fiscal and debt metrics for these sub-sovereigns than Moody's currently expects, could put downward pressure on their ratings or point to negative outlooks.

An upgrade or a downgrade of the sovereign rating could also exert upward or downward credit pressure on any of the two regional governments' ratings.

LIST OF AFFECTED RATINGS

Issuer: Krasnoyarsk, Krai of

Upgrades:

....LT Issuer Rating, Upgraded to Ba2 from Ba3

Outlook Actions:

....Outlook, Remains Stable

Issuer: Samara, Oblast of

Upgrades:

....LT Issuer Rating, Upgraded to Ba1 from Ba2

....Senior Unsecured Regular Bond/Debenture, Upgraded to Ba1 from Ba2

Outlook Actions:

....Outlook, Changed To Stable From Positive

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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.

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. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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
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
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

No Related Data.
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