The credit rating of Samara oblast

In 1997 the Samara Oblast became one of the few regions which received the approval of the President of the Russian Federation to implement external bonded loans (President’s order № 1212, dated 12.10.1997 “On Creating Conditions to Conduct Loans Operations on the Internal and External Capital Markets”).

It is not easy for investors to determine the weaknesses and advantages of the huge amount of international stock markets. The international credit rating for the bonds facilitates this process and deprives the investors of the necessary safety analyses of each issuer.

International private companies perform the ratings. Standard & Poor’s, Moody’s Investors Service and IBCA. Acquiring a rating is extremely important for bond issuers. Thus, it is impossible to enter an American stock market without a credit rating.

Most of the rating agencies categorize bonds into three large groups:

• Gradation investment bonds;
• Lower rate bonds;
• Low grade bonds without any ratings.

Criterion for granting the first category means a high degree of certainty that the bond issuer will fulfil the assumed responsibility to pay off debentures both in the favorable and unfavorable state of market.

The rating system developed by Standard & Poor’s, Moody’s Investors Service has four groups in the first category of bonds – investment bonds considered to be highly reliable (“AAA”, “AA” and “BBB”). Then there are five groups of the second category of bonds with the same structure. The probability of fulfilling the assumed responsibility by bond issuers are estimated at a lower level than with the investment bonds even in the favorable economic situation (“BB”, “B”, “CCC”, “CC” and “C”). Lately, additional “+” and “-” are used in the Standard & Poor’s, rating system, and “1” – in Moody’s system.

Within the project of European bonds emission in Samara Oblast the Oblast Administration has concluded agreements with the international rating agencies Standard & Poor’s and Moody’s Investors Service.

At the beginning of 1998 due to the favorable economic situation in the oblast, the rating agencies had given Samara Oblast a high credit rating. Within the up-coming European bonds emission in Samara Oblast on January 14, 1998, Moody’s Investors Service had given the BA 2 rating; on May 28, 1998, Standard & Poor’s had granted the “BB-” rating.

After the financial crisis in August 1998, the international rating agencies had reconsidered the long-term rating of the Russian Federation lower up to “CCC- unfavorable prognoses” (Standard & Poor’s) and “Caa – unfavorable prognoses ” (Moody’s Investors Service). The Samara Oblast rating had been lowered up to the same level.

October 28, 1999, due to the improving economic situation in the oblast and highly competent finance management, Standard & Poor’s had revised the long-term credit rating of samara Oblast increasing it from the “CCC-” level of unfavorable prognoses up to “CCC” favorable. Whereas the long-term credit rating of Russia, converted into the foreign currency, remained at “SD” (partial default) level.

January 5, 2000, the Moody’s Investors Service rating agency raised the rating of the Russian Federation due to the stabilizing economic situation in Russia after the crisis. Consequently, the rating of Samara Oblast had grown up to “Caa1” favorable prognoses.

September 4, 2000, as a result of the work conducted in July by the Oblast Administration, the Oblast Department of the Economic Development and Investments, Finance Office and agencies representatives, the Standard & Poor’s, rating agency increased the rating of Samara Oblast from “CCC stable” up to “B-stable” prognoses. The rating of samara Oblast within the rating of the Russian Federation (“B stable”) is similar to St. Petersburg rating (“B stable”) and is higher than the Moscow rating (“CCC+ positive prognoses”).

February 13, 2001, as a result of the work conducted in November by the Oblast Administration, the Oblast Department of the Economic Development and Investments, Finance Office and agencies representatives, the Moody’s Investors Service rating agency increased the rating of Samara Oblast from “Caa1 stable” up to “B3 -stable” prognoses. Samara Oblast hadreceived the rating of the same level with Moscow and St.Petersburg.

The annual review meeting of the Standard & Poor’s and Moody’s Investors Service analysts with the representatives of the Finance Office and the Department of Economic Development and Investments took place July 10 and 13, 2001.