TEXT-S&P raises Russia's Agency for housing Mortgage Lending rating

Wed Oct 3, 2012 9:44am EDT

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Overview
     -- We have revised our criteria for linking short- and long-term ratings 
for corporate and sovereign issuers and we recently raised our short-term 
foreign currency rating on Russia.
     -- We continue to view the liquidity position of Russian GRE Agency for 
Housing Mortgage Lending (AHML) as adequate under our criteria.
     -- We are therefore raising our short-term rating on AHML to 'A-2' from 
'A-3'.
     -- The upgrade does not reflect a change in our view of AHML's short-term 
creditworthiness.
 
Rating Action
On Oct. 3, 2012, Standard & Poor's Ratings Services raised its short-term 
issuer credit rating on Russian state-owned Agency for Housing Mortgage 
Lending OJSC (AHML) to 'A-2' from 'A-3'. At the same time, the 'BBB' long-term 
and 'ruAAA' Russia national scale ratings on AHML were affirmed. The outlook 
is stable. 

Rationale
We raised the short-term rating on AHML following the similar action on the 
Russian Federation (foreign currency BBB/Stable/A-2; local currency 
BBB+/Stable/A-2; Russia national scale 'ruAAA'), which resulted from the 
change in our criteria methodology for linking short-term ratings to long-term 
ratings for corporate and sovereign issuers. According to this criteria, the 
short-term rating is derived directly and solely from the long-term rating 
(for more details see "Methodology: Short-Term/Long-Term Ratings Linkage 
Criteria For Corporate And Sovereign Issuers", published May 15, 2012, on 
RatingsDirect on the Global Credit Portal). 

Given the proven "very high" probability of extraordinary state support to 
AHML due to its "very important" public policy role and a "very strong" link 
to Russia's sovereign government, as well as the agency's adequate liquidity 
position, we consider that the sovereign government's profile is significantly 
responsible for that of AHML. The raising of the short-term rating on AHML is 
therefore a direct consequence of the raising of the short-term rating on 
Russia.

Liquidity
The short-term rating on AHML is now 'A-2'. We assess the company's liquidity 
as "adequate" under our bank criteria and estimate the ratio of sources of 
liquidity to uses for the next 12 months at about 4x as of June 30, 2012.

AHML's debt repayment profile is smooth, and debt service is well below 
expected receipts from the amortization of mortgage loans at least until 2014. 
Throughout 2012-2013, we forecast that the agency's cash and cash equivalents 
will comfortably exceed its debt redemption falling due within the next 12 
months, which AHML estimates will peak at Russian ruble (RUB) 12 billion 
(about $400 million) in 2013 before subsiding to RUB8.5 billion in 2014. As of 
June 30, 2012, AHML's estimated cash and equivalents (on a consolidated basis) 
accounted for about RUB14 billion, with another RUB51 billion accumulated in 
deposits in Russian banks.

Outlook
The stable outlook reflects our view that over the next two years, the 
agency's cautious risk management and access to support from the state and its 
financial institutions will help it offset an expected gradual erosion of 
capitalization. Its earnings margin could also fall, partly because it could 
be relying less on state-guaranteed liabilities.

Although we do not currently expect to raise the ratings, we would consider 
doing so if we raised the ratings on the Russian Federation while the agency's 
stand-alone credit profile (SACP) and the likelihood of extraordinary support 
from the government remained unchanged.

If we lowered the ratings on the Russian Federation, we would also likely 
lower the ratings on AHML. Moreover, the ratings on AHML could come under 
pressure over the next two years, even if we affirmed or raised the ratings on 
Russia, should one of the following events occur:
     -- The federal government reduces the agency's role in implementing its 
policy and loosens control over the agency's operations, for example through 
an unexpected privatization; or
     -- AHML's risk position deteriorates to "weak" as a result of unexpected 
rapid loss accumulation.
 
We could also consider a negative rating action if the agency's projected 
risk-adjusted capital ratio were to fall below 10%. That said, we currently 
consider these scenarios to be very unlikely.

Rating Score Snapshot
Issuer Credit Rating          BBB/Stable/A-2
SACP                          bb+ 
Anchor                        bb
 BICRA economic risk score    7
 BICRA industry risk score    7

 Business Position            Moderate (-1)
 Capital and Earnings         Very Strong (+2)
 Risk Position                Adequate (0)
 Funding                      Above average (0)
 Liquidity                    Adequate 

Support                       (+2)
 GRE Support                  (+2)
 Group Support                (0)
 Sovereign Support            (0)

Additional Factors            (0)


Related Criteria And Research
     -- Full analysis on Agency for Housing Mortgage Lending OJSC, July 17, 
2012
     -- Ratings On Russia Affirmed On External Strength; Short-Term FC Rating 
Raised To 'A-2' On Criteria Change; Outlook Stable, June 27, 2012
     -- Methodology: Short-Term/Long-Term Ratings Linkage Criteria For 
Corporate And Sovereign Issuers, May 15, 2012
     -- Criteria | Financial Institutions | Banks: Commercial Paper I: Banks, 
March 23, 2004
 
Ratings List
Upgraded
                                        To                 From
Agency for Housing Mortgage Lending OJSC
 Short-Term Issuer Credit Rating        --/--/A-2          --/--/A-3
 
Ratings Affirmed

Agency for Housing Mortgage Lending OJSC
 Long-Term Issuer Credit Rating                   BBB/Stable
 Russia National Scale Rating                     ruAAA
 

 Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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