Fitch Ratings has affirmed the Russian Agency for Housing Mortgage Lending's (AHML) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BBB-' with Positive Outlooks and Short-Term Foreign-Currency IDR at 'F3'.
Fitch has also affirmed AHML's senior unsecured debt rating at 'BBB-' and assigned its two RUB5 billion bond issues due 2050 (ISIN RU000A0ZYF20 and RU000A0ZYF38) 'BBB-' rating. The ratings are aligned with AHML's IDR on the basis that the notes constitute senior and unsecured debt of the entity. The bonds rank pari passu with the entity's present and future unsecured and unsubordinated obligations. AHML's ratings are equalised with the Russian sovereign (BBB-/Positive/F3), reflecting its 100% state ownership and important role in the government's housing policy. The ratings also factor in the entity's unique status as state development institution in the housing sector, its tight control by the sovereign and state guarantees for a material share of AHML's domestic bonds. Fitch rates AHML using a top-down rating approach under its 'Rating of Public-Sector Entities - Outside the United States' criteria and views it as a credit-linked entity.
KEY RATING DRIVERS Legal Status Assessed as Stronger
AHML's ratings are strongly supported by its status as the sole housing development institution, which implements state policy in the Russian housing sector. AHML is listed as a strategic enterprise, immune from privatisation and due to its unique legal status, protected from bankruptcy. The state has been the entity's sole shareholder since its establishment in 1997 and AHML is granted statutory support from the state, as provisioned in a special law.
Strategic Importance Assessed as Stronger
Fitch views AHML's role as strategically important to the state due to the importance of housing affordability in Russia. AHML's activities cover full-cycle support to the sector starting from provision of land plots to developers and urban development to supporting housing demand through the development of the mortgage market and mortgage refinancing. AHML also aims to help develop rental housing in Russia through the promotion of mutual investments in the sector. In addition, AHML is the sole operator of the state support programme for distressed mortgage borrowers. The programme is funded by the federal government, which injected RUB4.5 billion into the agency's capital in 2015 and has approved an additional RUB2 billion injection in 2017. The state also guarantees most of AHML's domestic bonds (end-3Q17: RUB75 billion of RUB100 billion), which underlines AHML's importance to the state housing development policy.
Control Assessed as Stronger
The state exercises complete control over AHML's activities, including approval of the agency's strategy, appointment of the supervisory board and state audit of AHML's operations. The supervisory board has seven members, including high-ranking officials, and is chaired by the deputy chairman of the federal government. AHML is closely monitored by the central bank of Russia and is audited for the use of budgetary funds.
Integration Assessed as Midrange
Fitch views AHML's integration into the general government sector as moderate. AHML's accounts are not consolidated in the central government's budget and debt is not viewed as a general government's liability. However, AHML receives state funding in the form of equity injections and long-term loans from the Russian development bank Vnesheconombank (VEB, BBB-/Positive). In 2017, the government has approved an additional RUB14 billion VEB loan due 2048 and extended the maturity of the previously granted RUB40 billion loan till 2048. AHML also receives agency fees for the sale and lease of federal land plots (2016: RUB2.4 billion) and benefits from irrevocable state guarantees on the principal amount of its unsecured debt. Based on the sovereign's solid track record of support for AHML, Fitch assesses the willingness and ability of the Russian Federation to support AHML as very strong.
Sound Profile Amid Expanding Operations
AHML has been profitable for the last five years. Its Fitch-calculated net interest income-to-earning assets improved to 6.3% in 2016 from an average 5.3% in 2013-2015. The entity's mortgage portfolio is growing due to the securitisation of material mortgage pools of local banks (mostly Sberbank (BBB-/Positive)) and asset quality remains adequate with only 3.6% of mortgage portfolio in NPL (arrears for more than 90 days). AHML has strong capitalisation with a Fitch-estimated equity-to-asset ratio of 38% at end-3Q17, which is lower than the 44% at end-2016, but still robust, providing a buffer against potential losses.
RosCap Merger Could Impair AHML's Financials
Fitch expects AHML will integrate Bank Rossiysky Capital (RosCap; BB-/RWN) by end-2017 as the decision has already been approved by the federal government. This merger should be material for the group, in Fitch's view, and could impair AHML's strong financials given the bank's weaker credit profile. However, we expect the state will provide sufficient support should it be required for the bank's integration, thus ensuring sustainability of AHML's operating profile. Fitch anticipates that AHML will update its long-term development programme upon completion of the merger with RosCap. We expect that AHML will keep its development institution role in the Russian housing market. RosCap will operate as a universal bank, while its likely operational profile will be as that of a mortgage construction bank, according to AHML's management announcement.
A rating change would be triggered by changes to the ratings of the sovereign. Any dilution of linkage with the sovereign through a weakening of AHML's legal status, strategic role or public control, which could lead to a reduction of state support, could result in the ratings being notched down from the sovereign ratings. Contact: Primary Analyst Elena Ozhegova Director +7 495 956 2406 Fitch Ratings CIS Ltd 26 Valovaya Street Moscow, 125047 Secondary Analyst Konstantin Anglichanov Director +7 495 956 99 94 Committee Chairperson Christophe Parisot Managing Director +33 1 44 29 91 34 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: firstname.lastname@example.org
; Additional information is available on www.fitchratings.com
International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) Rating of Public-Sector Entities – Outside the United States (pub. 22 Feb 2016)
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