Expert RA gives A-plus for creditworthiness to Tatarstan

The Russian rating agency has confirmed the highest rating of the creditworthiness of Tatarstan

Expert RA has recently confirmed the maximum rating level — at the level of ruAAA — with forecast “stable” for Tatarstan. The agency notes the high diversification of the economy, good budget indicators and low debt burden. At the same time, the risks are caused due to the significant dependence of budget revenues on Tatneft and a small number of other major taxpayers. Read more in the material of Realnoe Vremya.

Maximum rating level

Expert RA Agency has confirmed the credit rating of the Republic of Tatarstan at the level of ruAAA, forecast stable. According to the agency's scale, this is the maximum level. It demonstrates the ability of the republic to meet its obligations in a timely and full manner.

Among the more than two dozen Russian regions rated by the agency, the same assessment was assigned to Bashkortostan and Yamal-Nenets Autonomous Okrug. Other regions, in particular, Krasnodar Krai, Nizhny Novgorod Oblast, Saratov Oblast and Kirov Oblast, Chuvashia and Udmurtia and other subjects assessed by the agency have a lower rating.

Despite the significant indicators of oil production in the Republic of Tatarstan, Expert RA notes a high diversity of the economy. In the structure of the gross regional product in Tatarstan at last year end, mineral production occupies 27,1%, manufacturing — 18%, wholesale and retail trade — 12,7%. The volume of GRP in 2018 amounted to 2,4 trillion rubles (higher than in 2017 by 15,4%), per capita — 625,000 rubles.

Strong budget indicators, low debt burden and dependence on Tatneft

Expert RA highlights the strong budget indicators of the republic. In particular, the share of tax and non-tax revenues in total budget revenues amounted to 84,2%, while the plan for the receipt of the tax and non-tax revenues was exceeded last year by 2,9%. More than 66% of tax revenues are provided due to taxes on income and on income of individuals.

At the same time, the agency recognizes that “moderately high dependence” on Tatneft, the largest taxpayer, and the fact that the top ten taxpayers provide about 39% of tax revenues, put pressure on the rating.

Aleksey Korenev, an analyst at Finam Group, says that ratings are influenced by a huge number of factors: the region's debt overburden, the state of its industry, the ratio of the region's national debt to the size of the domestic regional product, as well as the quality of the business environment.

“Indeed, the presence of several large enterprises that provide the lion's share of revenues to the budget of the republic is a risk factor, as the problems of one or more of these large taxpayers can have a dramatically negative impact on the state of affairs in the Republic of Tatarstan as a whole,” Korenev warns.

Expert RA adds that the low level of the debt burden of the republic has a positive impact on the rating. At the beginning of this year, the debt of Tatarstan amounted to 94,9 billion rubles, the ratio of debt to the tax and non-tax income last year — 40,4%. “The total debt of the republic is 90% of budgetary credits and 10% of the issued state guarantee of KAMAZ PJSC, which itself services its debt,” the agency noted. “This debt structure determines a low level of service expenses (0,04% of tax and non-tax revenues in 2018) and a comfortable repayment schedule: only 0,4% of the total debt is to be repaid within 12 months.”

Also, Expert RA notes the moderate debt burden of public sector enterprises and allows targeted financial support to them, but it will not have a significant impact on the creditworthiness of the region. “The high level of liquidity, good budget indicators will limit the needs of the republic in additional borrowing,” Expert RA believes.

“It is a very high rating and it quite accurately reflects the state of affairs in the region”

According to senior analyst at BKS Premier Sergey Suverov, the assignment of the maximum rating to Tatarstan is quite justified. “It is economically one of the most developed regions of Russia with the advanced industry, including both the extraction of natural resources (Tatneft) and mechanical engineering (KAMAZ). The region is distinguished by high social and technological standards, the debt burden is moderate, the share of small and medium-sized businesses at about 25 per cent is a good indicator,” the interlocutor said.

“Tatarstan cultivates the development of special economic zones, attracting investments, including foreign ones, measures to improve the innovativeness of the economy. It should be noted that the high rating provides an opportunity for more profitable borrowing and is a positive benchmark for investors in the region,” Suverov says.

Aleksey Korenev from Finam agrees with the rating of Tatarstan in general, “This is a very high rating for a Russian region and it accurately reflects the state of affairs in the republic.” Ratings are actively used by individual investors, banks and investment funds in determining the risks and, accordingly, the limits of investment in a particular instrument, or in a particular region, the expert notes. “Higher ratings mean that it will be easier to get loans to the republic, and investors will look at Tatarstan as a region where the business climate is better and investments are more reliably protected, thus incomes can be higher,” Korenev believes.

By Dmitry Antipov
Tatarstan