The change in the credit rating outlooks for Joint Stock Company "Kazakhstan Housing Company" (hereinafter, KHC, or the Company, former name: JSC «MO «Kazakhstan Mortgage Company») from Negative to Stable reflects the similar rating action on the credit rating of the Republic of Kazakhstan1 (ACRA rating under the international scale — BBB+, outlook Stable; hereinafter, the Republic, or Kazakhstan). The Company's creditworthiness is still determined by its high importance for the Kazakhstan's economy, and a corresponding ACRA’s opinion about a very high likelihood of extraordinary government support to the Company in case of urgency. The Agency notes that KHC performs an important social role aimed at improving housing affordability in Kazakhstan. The merger with the two sister development institutions that fulfil broadly similar functions in 2020 has supported ACRA's opinion on the importance of the Company for the group and the socio-economic policy of Kazakhstan.

The credit rating of the Company under the national scale for the Russian Federation is AA(RU), outlook Stable, as per the Methodology for Mapping Credit Ratings Assigned on ACRA’s International Scale to Credit Ratings Assigned on ACRA’s National Scale for the Russian Federation.

KHC is a fully owned subsidiary of “Baiterek” National Managing Holding JSC (hereinafter, Baiterek, or the Holding), the sole shareholder of which is the government of Kazakhstan. The key objectives of Baiterek are to contribute to the sustainable development of the economy of Kazakhstan by supporting its key segments and strategically important enterprises, and small and medium-sized businesses, as well as improve housing affordability, and develop innovations and exports. Apart from KHC (currently, about 15–20% of assets and 10–15% of equity of the Holding, according to ACRA's estimates), the Holding controls another eight subsidiaries; each of them implementing a specific mandate.

 

1 ACRA affirms LT BBB+ to the Republic of Kazakhstan, changes outlook to Stable.

Key rating assessment factors

ACRA assesses the likelihood of state support as very high. KHC performs an important social function by facilitating the implementation of state initiatives when it comes to housing provision in Kazakhstan. The state, represented by the Holding, exercises operational control over KHC. Furthermore, the Company’s operations are almost entirely state-funded. In ACRA's opinion, the termination or disruption of the Company’ activities may entail negative economic and social consequences for Kazakhstan, and cause significant damage to the government’s reputation.

In line with ACRA's expectations, in 2020, KHC consolidated the functions and balance sheets of two housing and construction operators owned by Baiterek, which strengthened the Company's position and supported the Agency's opinion that KHC is an integral part of the national economy. In July 2020, KHC merged with "Baiterek development" JSC, thereby causing a multiple expansion in the Company's operations, including financing local municipal bodies in order to boost housing construction in the Republic. In November 2020, the Company acquired JSC “Housing Construction Guarantee Fund” and was untrusted with a new mandate to promote shared-equity housing construction in Kazakhstan. In addition to the new functions, the old lines of activity remain with KHC. In particular, the Company provides housing rental purchase services to those employed mainly in the education and health care sectors, civil servants, and military personnel, as well as mortgage loans, which are either issued by the Company or bought out from commercial banks.

Regardless the strengthening of the position and expansion of the mandate of the KHC, the Agency still notes the presence of other similar development institutions, which could potentially exacerbate competition between government agents. In ACRA's opinion, there is still a room for reforming and optimizing financial development institutions in order to exclude any duplication of functions within related mandates.

The complicated external environment in 2020 affected the quality of the loan and rental portfolio of KHC: according to ACRA's estimates, the share of potentially problem assets amounted to about 7.5% of the portfolio (for comparison: a year earlier, ACRA estimated this share within 5%), and the cost of risk for 2020 reached about 6%. The Agency continues to consider the potential of timely and priority support from the state, a fairly comfortable coverage of non-performing assets with impairment reserves at around 70%, as well as the economic recovery expected this year, as the factors that will somehow mitigate risks and pressure on the Company's capital in the next 12–18 months.

Key assumptions

  • Maintained state shareholder and operational control;
  • Continued performance of an important social function for the Kazakh economy.

Potential outlook or rating change factors under the international scale

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18–month horizon.

A positive rating action may be prompted by:

  • Higher creditworthiness of Kazakhstan.

A negative rating action may be prompted by:

  • Deterioration in creditworthiness of Kazakhstan;
  • Signs of decreased systemic importance of the Company for Kazakhstan’s economy.

Potential outlook or rating change factors under the national scale for the Russian Federation

The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18–month horizon.

A positive rating action may be prompted by:

  • Higher creditworthiness of Kazakhstan.

A negative rating action may be prompted by:

  • Deterioration in creditworthiness of Kazakhstan;
  • Signs of decreased systemic importance of the Company for Kazakhstan’s economy.

Rating components

SCA: none.

Adjustments: none.

Support: on par with the Republic of Kazakhstan under the international scale.

Issue ratings

No outstanding issues have been rated.

Regulatory disclosure

The credit rating was assigned to JSC "Kazakhstan Housing Company" under the international scale based on the Methodology for Analyzing Relationships Between Rated Entities and the State under the International Scale, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities. The credit rating was assigned to JSC "Kazakhstan Housing Company" under the national scale for the Russian Federation based on the Methodology for Mapping Credit Ratings Assigned on ACRA’s International Scale to Credit Ratings Assigned on ACRA’s National Scale for the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.

The credit ratings assigned to JSC "Kazakhstan Housing Company" under the international scale and the national scale for the Russian Federation were published by ACRA for the first time on May 21, 2020. The credit ratings and credit rating outlooks for JSC "Kazakhstan Housing Company" are expected to be revised within one year following the publication date of this press release.

The credit ratings are based on the data provided by JSC "Kazakhstan Housing Company", information from publicly available sources, and ACRA’s own databases. The rating analysis was conducted using IFRS reporting of JSC "Kazakhstan Housing Company." The credit ratings are solicited, and JSC "Kazakhstan Housing Company" participated in their assignment.

No material discrepancies between the provided information and the data officially disclosed by JSC "Kazakhstan Housing Company" in its financial statements have been discovered.

ACRA provided no additional services to JSC "Kazakhstan Housing Company." No conflicts of interest were discovered in the course of the credit rating assignment.

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