Moody's upgrades issuer ratings of Kazakhstan Mortgage Company

/REUTERS, Moscow, November 02, 2006/ - Moody's Investors Service has upgraded Kazakhstan Mortgage Company's (KMC) Baa2 long-term local currency issuer rating to Baa1. The outlook for the rating is stable. In accordance with Moody's GRI rating methodology, KMC's ratings reflect the combination of the following inputs: (i) baseline credit assessment in the range of 11-13 (on a scale of 1 to 21, where 1 represents lowest credit risk); (ii) Kazakhstan's A2 local currency deposit ceiling; (iii) high interdependence between default of the company and default of the government; and (iv) high probability of government support. According to Moody's, the new ratings reflect the company's degree of importance -- it is fairly similar in importance and therefore likely to take its place alongside other companies in fund Kazyna, a state-controlled holding company which will incorporate an array of state-owned institutions. It also reflects the implications for the financial markets and the level of damage to the Kazakh government's reputation that default of the company would have. KMC plays a key social-political role in the development of the mortgage market and therefore the availability of housing to the public. Default on the part of the company could cause embarrassment (although, to a lesser degree than in the case of a bank), as it would imply government mismanagement in an area of great socio-political importance. Thus the rating incorporates a high likelihood of support from the authorities in the event of need. At the same time, the ratings incorporate the high interrelationship between the probabilities of default of the company and the government, as in the event of a government default, KMC would also be negatively affected, both on the asset and the liability sides. The baseline credit assessment in the range of 11-13 is underpinned by the relatively low level of risks, including credit risk, assumed by KMC, reflected in the relatively low concentration levels, the right to transfer loans back to the issuer bank in the case of loan impairment or insurance coverage from the state-owned Kazakhstan Mortgage Guarantee Fund. However, it is constrained by the company's short track record, its potentially volatile operating environment with a high degree of informal political interference in the economy, an unseasoned market for mortgage lending and KMC's thin operating margins. At the same time, further setbacks regarding implementation of the state housing programme or maturing of the market may result in a higher level of risks assumed, including becoming involved in conventional commercial mortgage lending. As KMC thus far has only conducted operations in the domestic currency, its issuer rating pertains only to local currency obligations. KMC is wholly owned by the Ministry of Finance of Kazakhstan and is headquartered in Almaty. KMC's business model was adapted from Fannie Mae (USA) and Cagamas Berhad (Malaysia). The company acquires residential mortgages from a range of local commercial banks and private- sector mortgage and finance companies, providing liquidity for their mortgage lending programmes. KMC finances its activities through collateralised debt issuance in the domestic market. KMC reported total assets of KZT41 billion (US$305 million) and capital of KZT10 billion (US$76 million) under IFRS at 31 December 2005. London Adel Satel Managing Director Financial Institutions Group Moody's Investors Service Ltd. JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Moscow Vladlen Kuznetsov Asst Vice President - Analyst Financial Institutions Group Moody's Eastern Europe Telephone: +7-495-771-7146 Facsimile: +7-495-937-8290 [2006-11-02]