Nov 25 (The following statement was released by the rating agency)
Fitch Ratings has upgraded Kazakhstan Mortgage Company's (KMC) Long-term foreign currency
rating to 'BBB-' from 'BB+' and its Long-term local currency rating to 'BBB' from 'BBB-'. The
Short-term foreign currency rating has been upgraded to 'F3' from 'B'. The Outlooks on the
Long-term ratings are Stable.
Fitch has also upgraded the long-term local currency rating of outstanding
senior debt to 'BBB' from 'BBB-' (ISIN KZ2C00001048 KZ2C00000180 KZ000A0TZWY9
KZ000A0TZW44 KZ2C00002152 KZ2C00002178 KZ000A0TZWX1 KZ2C00001030 KZ000A0TZW51
KZ2C00001071 KZ2C00002160 KZ2C00001741 KZ2C00001022); and affirmed the long-term
local currency rating of outstanding subordinated bond (ISIN KZ2C00001733) at
KEY RATING DRIVERS
The upgrade reflects growing sovereign support to KMC as evidenced by up to
KZT107.8bn equity increase over the 2013-2016 period and a tighter integration
of the company with the State's housing policy. Following the upgrade, KMC's
ratings are two notches below the State's Long-term foreign and local currency
IDRs at 'BBB+' and 'A-' respectively, reflecting relative independence of KMC's
debt policy. Thus management takes decisions on KMC's debt, which is not
consolidated with government debt. Fitch used its public-sector entities rating
criteria and applies a top-down approach in its analysis of KMC.
The rating on KMC's KZT10bn domestic subordinated bond is notched down a level
from KMC's Long-term local currency rating 'BBB-' of KMC, reflecting the greater
potential loss severity than other outstanding KMC bonds, given the issue's
subordinated and junior status.
KMC's ratings reflect the company's 100% ownership by the government, its
strategic importance in social housing through its involvement in the national
'Affordable Housing Programme 2020' and government support. The company received
KZT14bn of equity injection in July 2013 and expects an additional KZT11bn by
year-end and up to KZT82.8bn during 2014-2016.
KMC is also indirectly supported by the state as about 76% of its outstanding
bonds are held by state-owned institutions such as state pension funds,
Development Bank of Kazakhstan (BBB/F3/Stable) and Samruk-Kazyna
(BBB+/F2/Stable) group companies. In 2013 KMC placed three bond issues with a
total value of KZT37.7bn, of which Development Bank of Kazakhstan and state
pension funds purchased KZT21.6bn and KZT12.1bn respectively.
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. The company has initiated construction of about
150,000 sq m of housing units in seven cities of Kazakhstan in 2013.
Additionally, KMC contributes to the stability and development of Kazakhstan's
financial sector by refinancing mortgage loans of commercial banks, by
securitisation of mortgages and by issuing bonds.
An upgrade may result from an upgrade of the sovereign ratings, or continuation
of government support in the form of capital injections or other forms of
funding that would lead to an improvement of the company's financial position
A reversal of state support that is primarily manifested in a delay to, or lack
of, the equity injection as envisaged over the 2014-2016 could lead Fitch to
widen notching from the sovereign to three notches, resulting in a downgrade.
A credit analysis on KMC is available at www.fitchratings.com.