The credit rating of JSC «Kazakhstan Housing Company» (hereinafter, KHC, the Company) on the national scale for the Russian Federation has been upgraded by one notch as a consequence of the change in the Methodology for Credit Rating Assignment to Sovereign Entities Under the International Scale concerning the impact of sovereign risks on the final rating of a rated entity. Therefore, the credit rating of KHC on the national scale for the Russian Federation has been upgraded to AA+(RU), outlook Stable, and, as before, it is determined on the basis of the credit rating of KHC on the international scale in accordance with 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.

The affirmation of the Company’s credit rating at BBB+ under the international scale still reflects the high importance of KHC for the economy of the Republic of Kazakhstan (hereinafter, the Republic, or Kazakhstan, ACRA's long-term credit ratings under the international scale: BBB+, outlook Stable), 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 plays an important social role aimed at improving housing affordability in Kazakhstan. In 2020 KHC merged with two sister development institutions that fulfilled broadly similar functions; this supports ACRA's opinion on the importance of the merged Company for the group and the socio-economic policy of Kazakhstan.

ACRA has also assigned eAA+(RU) to the upcoming issue of series 001P-01 senior unsecured bond of KHC Finance LLC (state registration No. 4B02-01-00032-L-001P dated June 03, 2021 at the Moscow Exchange). This rating level corresponds with the Company's rating on the national scale - KHC acts as the offeror for the mentioned bond to be issued by KHC Finance LLC, a company registered in Russia.

KHC is a 100% 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, the Holding controls another 11 subsidiaries; each of them implementing a specific mandate.

KEY ASSESSMENT FACTORS

ACRA assesses the degree of state support as very high. KHC performs an important social function by facilitating the implementation of state initiatives for 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 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. The main functions of the consolidated institution include (in order of descending volume of operations): financing local municipal bodies in order to boost housing construction in the Republic; issuing guarantees for completion of shared construction in progress; provision of rental real estate with the right of subsequent purchase to those employed mainly in the education and health care sectors, civil servants, and military personnel; mortgage loans, which are either issued by the Company or bought out from commercial banks. The Agency does not exclude that in the next 12 months, the Company will enter other lines of business, including project finance aimed at funding construction companies for building new residential houses.

Regardless the strengthening of the position and expansion of the mandate of KHC last year, the Agency notes the presence of other broadly similar development institutions, which could potentially exacerbate competition between government agents.

Having deteriorated in 2020, the quality of the loan and rental portfolio of KHC has not changed drastically in H1 2021: according to ACRA's estimates, as of the middle of 2021, the share of potentially problem assets amounted to about 7% of the portfolio. 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 observed this year, as the factors that will somehow mitigate risks and pressure on the Company's capital in the next 12 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 importance of the Company for Kazakh 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 importance of the Company for Kazakh economy.

RATING COMPONENTS

Standalone Creditworthiness Assessment (SCA): none.

Adjustments: none.

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

ISSUE RATINGS

Expected credit rating rationale. KHC acts as the offeror for the upcoming issue of series 001P-01 bond of KHC Finance LLC (state registration No. 4B02-01-00032-L-001P dated June 03, 2021 at the Moscow Exchange). The pending issue is the Company's senior unsecured debt. Due to the absence of either structural or contractual subordination of the expected issue, ACRA assesses this bond pari passu with other existing and future unsecured and unsubordinated obligations of KHC. According to the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments on the National Scale for the Russian Federation, in order to assign an expected credit rating on the national rating scale to the abovementioned bond issue, the KHC's credit rating of BBB+, outlook Stable, on the international scale should be used along with 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. In accordance with this methodology, the expected issue credit rating on ACRA's national rating scale for the Russian Federation is eAA+(RU).

Key issue properties

Borrower

JSC KHC

Issuer’s credit rating on the international scale

BBB+, outlook Stable

Actual issuer

KHC Finance LLC

Type of security

Exchange traded uncertified non-convertible interest-bearing bond subject to centralized title registration, 001P-01 series

Type of debt

Senior unsecured

Proposed offer date

September 2021

Expected time to maturity

Three years

Reg. No.

4B02-01-00032-L-001P

Source: ACRA, issuer's data

REGULATORY DISCLOSURE

The credit rating of JSC KHC has been assigned under the international scale based on the Methodology for Analyzing Rated Entities Associated with a State or a Group and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities. The credit rating of JSC KHC has been assigned 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 expected credit rating has been assigned to the 001P-01 series bond of KHC Finance LLC (state registration No. 4B02-01-00032-L-001P dated June 03, 2021 at the Moscow Exchange) under the national scale for the Russian Federation based on the Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation, 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.

ACRA will assign a credit rating to the 001P-01 series bond of KHC Finance LLC (state registration No. 4B02-01-00032-L-001P dated June 03, 2021 at the Moscow Exchange) after the final documentation is presented by JSC KHC. In case of any significant discrepancies between the final documentation and the preliminary materials, ACRA may change the issue’s credit rating against the expected credit rating.

The credit ratings of JSC KHC 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 of JSC KHC and their outlooks are expected to be revised within one year following the publication date of this press release. An expected credit rating has been assigned to the 001P-01 series bond of KHC Finance LLC (state registration No. 4B02-01-00032-L-001P dated June 03, 2021 at the Moscow Exchange) for the first time. The next rating action is expected within 180 days following the publication date of this press release.

The credit ratings of JSC KHC and the expected credit rating of the 001P-01 series bond of KHC Finance LLC (state registration No. 4B02-01-00032-L-001P dated June 03, 2021 at the Moscow Exchange) were assigned based on the data provided by JSC KHC, information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the consolidated IFRS financial statements of JSC KHC. The credit ratings of JSC KHC and the expected credit rating of the 001P-01 series bond of KHC Finance LLC are solicited, and JSC KHC participated in their assignment.

In assigning the credit ratings of JSC KHC and the expected credit rating of the 001P-01 series bond of KHC Finance LLC, ACRA used only information, the quality and reliability of which was, in ACRA's opinion, appropriate and sufficient to apply the methodologies.

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

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