ACRA affirms AAA(RU) to JSC "AHML" (hereinafter, the Company), outlook Stable, and AAA(RU) to bond issues (BO-05, BO-06, BO-07, BO-08, BO-09, BO-10).
The credit rating assigned to the Company is based on the very high likelihood of extraordinary state support to the Company in view of the Company’s systemic importance for the Russian economy and a determining influence that the government has on its creditworthiness. Implementation of the Company's strategy and acceptance of 100% shares in BANK «ROSSIYSKY СAPITAL» (Public Joint Stock Company) (the Bank) are neutral rating factors for the credit rating of the Company, however, they create risks that certain indicators of standalone creditworthiness may deteriorate at the mid-term horizon.
In accordance with the law, the Company performs a unique role of a unified housing sector development institution, providing full support to the housing sector in the Russian Federation.
ACRA expects that, under a systemic economic stress scenario and/or in case of a significant deterioration of the Company's standalone creditworthiness, the Russian Government will provide it with extraordinary support in the form of capital or liquidity injection sufficient to meet creditor claims. This opinion is based on the following.
Key rating assessment factors
Very high systemic importance. The Company is a development institution that, in accordance with its mandate set by the law, performs a unique function of developing and supporting the housing market in Russia. The Company is included on the list of strategically important institutions not subject to privatization. The Russian Government participates in managing such institutions in order to provide for strategic state interests, defense and national security issues, as well as ensure protection of rights and interests of Russian citizens. Available housing is one of the national priorities in Russia, and the Company was established to take part in implementing it. Other contributors to high systemic importance of the Company are:
- As at late September 2017, the RUB 74.7 bln bond issue of the Company was secured by irrevocable guarantees of the RF Government;
- A default under obligations of the Company or mortgage-backed securities covered by the Company (risk weight of 20%) would entail both financial and significant reputational risks for the state;
- Strategic focus that expands due to integration of the Bank and creation of a universal mortgage and construction bank; implementation of such strategy will increase substantially the share of the Company in the primary mortgage market of Russia and in the housing finance sector.
In aggregate, the above circumstances further support the systemic and social importance of the Company and its role in the national economic policy.
Very strong state influence on creditworthiness. The sole shareholder of the Company is the state represented by the Federal Agency for State Property Management. In addition to shareholder control, the government has the power to determine the Company's strategies and supervise its operating activities: the Company's board of directors (approved by the Russian government) includes representatives of Russian federal authorities, the Bank of Russia, and the largest systemically important credit institutions. In addition, a joint working group set by the Bank of Russia constantly monitors the Company’s financial status.
ACRA also notes the following factors that confirm the strong ties between the Company and the government: (1) a legal immunity against bankruptcy procedures; (2) a government's propensity to provide an extraordinary support using budgeting mechanisms established by the law; (3) previous cases of support provided in the form of state financing (a RUB 40 bln special-purpose loan by Vnesheconombank, income from selling and renting out federal-status land plots – a transaction type previously handled by the Russian Housing Development Foundation).
ACRA notes possible negative impact of acquisition of the Bank by the Company on the consolidated level of standalone creditworthiness of the Company in the mid-term. We are of the opinion that, despite the financial support (including recapitalization and purchase of distressed assets) provided by the state to the Bank before the Bank was transferred to the Company, the difference between the Bank's standalone creditworthiness ("bb +") and the Company's credit rating declined, but it is still high enough. This is evidenced by the substantially lower capital adequacy of the Bank (N1.2 at 9.99% as of November 01, 2017) and the Company (30.6% as of June 30, 2017, according to ACRA estimates). As the volume of assets is comparable, ACRA expects that the Company's capital adequacy at the consolidated level (including the Bank) will significantly decrease in the next 12 months. At the same time, taking into account 1) the Bank's aggressive business growth strategy; 2) the pronounced focus of the future activities of the Bank on the housing finance sector (according to the ACRA methodology, the sector is deemed highly risky relative to other sectors of the Russian economy); 3) integration risks associated with the need to build common risk practices and control procedures (which differ significantly at present) and the risks of identifying the Bank's assets/operations that require further impairment; and 4) the Company's own plans to increase the volume of mortgages held through the mechanism of the "MBS Factory", we believe that, in the frames of the new strategy, the above may lead to a significant reduction in the ability of the Company's consolidated capital to absorb unforeseen credit losses and to an increase in the sensitivity of the Company's business model to loan cycle phases. On the other hand, given the high likelihood of extraordinary state support to the Company, the above risks do not affect the credit rating of the Company.
Key assumptions
- Continued shareholder and operational control of the state over the Company;
- Acquisition of the Bank;
- Consolidated capital adequacy within 12.5-15% in the next 12–18 months.
Potential outlook or rating change factors
The Stable outlook assumes that the rating will most likely stay unchanged within the 12 to 18-month horizon.
A negative rating action may be prompted by:
- A notable decline of the Company's systemic importance for the Russian economy;
- A loss of operational or shareholder control over the Company on the part of the RF Government;
- A significant decline in the standalone creditworthiness of the Company if the RF Government's propensity to provide regular or extraordinary support goes down.
Rating components
Standalone creditworthiness assessment (SCA): none.
Adjustments: none.
Support: on par with the RF.
Issue ratings
ACRA assigned AAA(RU) to:
JSC “AHML”, BO-05 (ISIN RU000A0JX2R1); maturity date: December 23, 2049,
issue volume: RUB 5 bln;
JSC “AHML”, BO-06 (ISIN RU000A0ZYF20); maturity date: October 30, 2050,
issue volume: RUB 5 bln;
JSC “AHML”, BO-07 (ISIN RU000A0ZYF38); maturity date: October 30, 2050,
issue volume: RUB 5 bln;
JSC “AHML”, BO-08 (ISIN RU000A0ZYFM5); maturity date: November 13, 2050,
issue volume: RUB 5 bln;
JSC “AHML”, BO-09 (ISIN RU000A0ZYAR5); maturity date: September 17, 2020,
issue volume: RUB 10 bln;
JSC “AHML”, BO-10 (ISIN RU000A0ZYFN3); maturity date: November 13, 2050,
issue volume: RUB 10 bln.
Credit rating rationale. The above issues are senior unsecured debt of JSC "AHML". Due to the absence of either structural or contractual subordination of the issues, ACRA regards them as equal to other existing and future unsecured and unsubordinated debt obligations of the Company in terms of priority. According to the ACRA methodology, the credit rating of the issues is equivalent to that of JSC "AHML", i.e. AAA(RU).
Regulatory disclosure
The credit ratings have been assigned to JSC "AHML" and bonds (ISIN RU000A0JUAG0, RU000A0ZYF20, RU000A0ZYF38, RU000A0ZYFM5, RU000A0ZYAR5, RU000A0ZYFN3) issued by JSC "AHML" under the national scale for the Russian Federation based on the Methodology for Analyzing Relationships Between Rated Entities and the State and the Key concepts used by the Analytical Credit Rating Agency within the scope of its rating activities. Relevant provisions of the Methodology for Credit Ratings Assignment to Banks and Bank Groups Under the National Scale for the Russian Federation have been applied to assess certain factors of the standalone creditworthiness of JSC "AHML". The Methodology for Assigning Credit Ratings to Individual Issues of Financial Instruments under the National Scale of the Russian Federation has also been applied to rate the bond issues above.
The credit rating assigned to JSC "AHML" was first published by ACRA on December 29, 2016. The credit rating of JSC "AHML" and its outlook are expected to be revised within one year following the rating action date (December 25, 2017).
The issue credit ratings were first published by ACRA: January 18, 2017 — RU000A0JX2R1, September 19, 2017 — RU000A0ZYAR5, October 31, 2017 — RU000A0ZYF20, October 31, 2017 — RU000A0ZYF38, November 09, 2017 — 4В02-08-00739А, November 09, 2017 — 4В02-10-00739А. The credit ratings are expected to be revised within one year following the rating action date (December 25, 2017).
The above credit ratings are based on the data provided by JSC "AHML", information from publicly available sources, and ACRA’s own databases. The rating analysis is based on the consolidated IFRS financial statements of JSC "AHML" and the management reports of JSC "AHML". The credit ratings are solicited, and JSC "AHML" participated in their assignment and affirmation.
No material discrepancies between the provided information and the data officially disclosed by JSC “AHML” in its financial statements have been discovered.
ACRA provided no additional services to JSC “AHML.” No conflicts of interest were discovered in the course of credit rating assignment.
