''A good signal for investors'': Moody’s upgrades Tatarstan’s rating after Russian

Regions' credit profile rises

''Credit rating is a rating reflecting an issuer's credit profile, that's to say, its ability to repay obligations. After upgrading the Russian Federation's rating, given good indicators of replenishment of the Republic of Tatarstan's budget, we reconsidered ratings of the Republic of Tatarstan for an upgrade,'' tells leading analyst of Moody's in Russian regions Semyon Isakov. The expert also noted a considerable reduction in debt when deciding to upgrade the rating.

According to the interlocutor from Moody's, the upgrade of the rating reflects a reduction of investors' risks who lend the republic money as well those companies that are the state's property.

In the republic it refers to Svyazinvestneftekhim whose rating has been upgraded from Ba2 to Ba1 and Tatneft (from Baa3 to Baa2). But in this case, the country's higher sovereign rating played the key role, Isakov clarified.

Experts confirm that after changing a sovereign rating, regions and some state-owned companies' rating are reconsidered. But the rating of all regions and all state-owned companies doesn't change identically: there are exceptions. ''Every region has its own risks, which not always correlate with the situation in the country in general from a perspective of solvency and financial risks in state obligations,'' says Pavel Samiyev, director general of BusinessDrom analytic agency.

Moody's has upgraded the rating of 12 regions of the Russian Federation in total, goes on Isakov. ''In the majority of rated regions we see a situation similar with Tatarstan: their credit profile improves thanks to consolidation of budgets and reduction in the level of debt load. So among Volga Federal Okrug regions, we've upgraded ratings of the Republic of Bashkortostan, Samara Oblast, the Chuvashia Republic, Nizhny Novgorod Oblast.''

The agency has also upgraded the ratings of Moscow Oblast, Moscow, Khanty-Mansi Autonomous Okrug, Saint Petersburg, Krasnodar and Krasnoyarsk Krai, Komi and Nizhny Novgorod Oblast. Only Moscow Oblast's outlook is ''positive'', that of the other regions is ''stable''.

''A general positive background''

As the rating is upgraded after changing Russia's sovereign rating, we can't talk about significant positive changes – we rather have a general positive background because of the upgraded sovereign rating, says Samiyev. But it's anyway good news for the republic:

''It means that there aren't any additional risks and threats that would allow precisely Tatarstan to upgrade the rating against this backdrop. This means there are few specific risks.'' The interlocutor also reminds that the indicator is one of the highest among the regions, while Tatarstan is anyway one of the leading regions in credit profile. ''It suggests that, from a perspective of financial obligations including issued bonds, it's at a good level, the risks aren't high. It's a good signal for investors,'' he adds.

''International agencies' politics is that when granting a rating a country itself, the rating of companies, regions inside isn't higher than the sovereign rating – anyway, we have a sovereign state, and the regions have great dependence on federal centres. This is why a region's rating can't be higher than the sovereign one, including at Moody's,'' says the expert who desired to remain unnamed owing to corporate rules. It was expected that they would raise key regions and companies' ratings after upgrading the sovereign rating, which once also could have had higher ratings, the interlocutor continues: ''That's to say, it doesn't mean, for instance, there have been some positive events in the same Tatarstan or other regions and companies that have had analogous changes, which allowed to upgrade the rating.''

At the same time, according to Director in Corporate and Sovereign Ratings at Expert RA agency Gulnaz Galiyeva, 2018 was positive for Tatarstan. The republic's financial stability is high, the region's budget had a good surplus, the budget's replenishment plan was also topped, Galiyeva goes on: ''This, undoubtedly, will have a very good impact on both budget performance and repayment of obligations. It's good news for the region that its debt was fully represented by public loans from the Ministry of Finance. This is why it will allow to send free money after budget performance in surplus to major costs, to the social sphere, it's good for the region in general.''

The biggest part of the debt is public loans that were taken out as early as for the Universiade, part of them was represented by budget guarantees, which were granted to KAMAZ, the interlocutor continues. According to the Tatarstan Ministry of Finance, as of 1 January 2019, Tatarstan's public debt totalled almost 95bn rubles. 84,6bn rubles of them are public loans, the rest is state guarantees of the republic granted by Russia in a foreign currency.

Moreover, as of 1 January 2018, the total volume of domestic debt was 93,3bn rubles (84,9bn rubles are debt in public loans, that's to say, 300m more than as of early 2019; the other 8,4bn accounts for Tatarstan state guarantees).

''As KAMAZ has quite high financial stability and repays its debts on its own, risks of arising such a guarantee and its execution are evaluated for Tatarstan quite low. In other words, at the moment the region has only costs to repay public loans,'' says the interlocutor from Expert RA. Moreover, she continues, the budget takes part in restructuring public loans, this will also allow to comfortably repay these public loans. Galiyeva also noted the budget performance's high result in 2018: ''It's positively evaluated by both us and international agencies.''