Baku, Azerbaijan, Nov. 25
By Elena Kosolapova - Trend:
International Rating Agency Fitch Ratings has affirmed Kazakhstan Mortgage Company's (KMC) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB-' and Long-term local currency IDR at 'BBB', the agency reported on Nov. 25. The Short-term foreign currency IDR has been affirmed at 'F3'. The Outlooks on the Long-term ratings are Stable.
Fitch has also affirmed the Long-term local currency rating on KMC's outstanding senior debt at 'BBB' and the Long-term local currency rating on the outstanding subordinated bonds at 'BBB-'.
"KMC's ratings reflect the company's ultimate ownership by the government, its strategic importance in the area of social housing and hence potential government support," Fitch said.
KMC acts as the government's agent in providing affordable housing and plays a crucial role in implementing government social housing programmes for low- and middle-income households. Additionally, KMC contributes to the stability and development of Kazakhstan's financial sector by refinancing the mortgage loans of commercial banks, by securitisation of mortgages and by issuing bonds.
Fitch uses its public-sector entities rating criteria and applies a top-down approach in its analysis of KMC. Its ratings are two notches below the sovereign (BBB+/Stable), reflecting the company's moderate integration with the sponsor as its debt is not integrated with government liabilities, and the continuing revision of amount, format and timing of state support.
The rating on KMC's domestic subordinated bond is notched down one notch from KMC's Long-term local currency IDR, reflecting the greater potential loss severity than other outstanding KMC bonds, given the issue's subordinated and junior status.
KMC plays an important role in the state housing policy through its involvement in the State Programme for Affordable Housing-2020. In 2013-2014, the company has initiated construction of 274,000 square meters of housing units across the republic. To fund the construction, KMC received 29.2 billion tenge (180.87 tenge = $1) of equity injection from the state budget and expects further state financing in 2015-2016.
KMC receives indirect support from state-owned institutions, which contributes to Fitch's view that KMC would be eligible for government support. KMC relies on wholesale funding for assets, some of which is provided at subsidised rates by state-owned institutions. About 77 percent of KMC's outstanding bonds are held by state-owned institutions such as state pension funds, Development Bank of Kazakhstan (BBB/Stable/F3) and Samruk-Kazyna (BBB+/Stable/F2) group companies.
Fitch noted that in November 2014, the president of Kazakhstan declared that 180 billion tenge of the National Fund will be invested in the republic's social rental housing in 2015-2016. KMC's management expects that the company will receive the majority of that amount. Fitch anticipates that the support could be provided either in the form of an equity injection or subsidised long-term loan. Although the form of funding has not yet been approved, Fitch expects that the state support will reduce the KMC's needs in market funding, decrease its cost of borrowing and underpin the company's financial performance at break-even.
Fitch said, an upgrade of KMC's ratings may result from an upgrade of the sovereign ratings or expansion of government support on sustainable basis in the form of capital injections or other forms of funding, accompanied by maintaining the company's profitability.
A reversal of state support that is primarily manifested in a delay to, or lack of, state funding as envisaged over 2015-2016 could lead Fitch to widen the notching from the sovereign to three notches, resulting in a downgrade.
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