Fitch affirms Azerbaijan Mortgage Fund at 'BBB-'; Outlook Stable

Photo: Fitch affirms Azerbaijan Mortgage Fund at 'BBB-'; Outlook Stable / Finance

Azerbaijan, Baku, May 17 / Trend I. Khalilova /

Fitch Ratings has affirmed Azerbaijan Mortgage Fund under the Central Bank of Azerbaijan Republic's (AMF) Long-term foreign currency rating of 'BBB-' and a Long-term local currency rating of 'BBB-'. The Outlooks for the Long-term ratings are Stable, Fitch Ratings said today.

"AMF's ratings are equalised with the Azerbaijan sovereign rating, reflecting the entity's public sector status, its tight control by the sovereign through the central bank and its important role in the government's housing finance policy," the statement said.

According to AMF the central bank has the duty to finance AMF (including repayment of the bonds issued), should this be needed. Fitch uses its public-sector entities rating criteria and applies a top-down approach in its analysis of AMF.

AMF was established as a public sector entity by decree of the president of the Republic of Azerbaijan in September 2005. AMF's main purposes are to create funding mechanisms which provide home ownership to Azerbaijani citizens, through long-term financing, and to attract domestic and foreign investment into mortgage financing.

Provision of affordable housing is a high priority for the state. Article 43 of the constitution recognises the need to respond to the country's housing demand, particularly in light of the increasing demand for higher standard urban housing within the country.

AMF reports directly to the central bank whose management board act as the fund's board of directors. The entity's accounts are audited by an independent auditor appointed by the central bank. Although it has its own separate budget, AMF receives regular contribution from the state budget.

By end-2012 the accumulated contribution from the state totalled AZN136m. AMF also benefits from a buy back guarantee for its bonds from the central bank. Fitch expects that AMF will continue to receive regular equity injections and benefit from the central bank support in the future.

AMF started to borrow in 2009 through issuance of covered bonds and senior bonds. Financial debt was AZN243m at end-2012 and channelled completely for mortgage portfolio expansion. Borrowings and state contributions are set to increase in line with the strategic plan set for the entity by the state.

A rating change would be triggered by a change in the ratings of the sovereign and continued strong implicit support, as AMF is credit-linked to the sovereign.

Changes to legal status, public control that would lead to dilution of control or likelihood of support by the sovereign could result in notching down from the sovereign rating, the statement said.

The official exchange rate is 0,7847 AZN/USD on May 17.

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