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. 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