Moody’s downgrades long-term rating of Mortgage Organization Kazakhstan Mortgage Company to B2; outlook negative

September 29. KASE

Moody's downgrades long-term rating of Mortgage Organization Kazakhstan Mortgage Company to B2; outlook negativeMoody’s Investors Service has today downgraded to B2 from B1 the long-term local currency issuer rating of Kazakhstan Mortgage Company (KMC) – a Government-Related Issuer (GRI). The outlook on the B2 issuer rating is negative. The issuer rating now incorporates a weaker Baseline Credit Assessment (BCA) of 16 (from 15) on a scale of 1 to 21, where 1 represents lowest credit risk – in accordance with Moody’s GRI rating methodology.

RATINGS RATIONALE

The downgrade of KMC’s long-term issuer rating to B2 from B1 was triggered by the deterioration of the company’s credit profile, and particularly reflects: (i) b ongoing recurring losses that increased in the first six months of 2011 following the deterioration of the company’s net interest margin (NIM) which was negative (-0.95%) in H1 2011; (ii) further erosion of the shareholders’ equity that shrunk by 5% in H1 2011; and (iii) in Moody’s view, the unclear prospects of the company’s business profile given the ongoing reduction of KMC’s loan book for the third successive year since 2009 (in the first six months of 2011, the gross loan book declined by 4.3%, compared with a 9.9% decline in 2010 and a 3.3% decline in 2009).

Moody’s believes that the ongoing deterioration of KMC’s financial fundamentals is eroding the company’s capital, and renders the sustainability of its business potentially vulnerable in the long-term horizon.

At the same time, KMC’s B2 rating is supported by the (i) currently high level of capital adequacy whereby the Basel I Tier 1 capital adequacy ratio was 26% as at end-June 2011, and (ii) reasonable cushion of liquid assets (including cash, deposits with banks and securities), which accounts for 38% of the company’s total assets as at end-June 2011 that – along with limited repayments of wholesale funding over the next 12 months – positively affects KMC’s liquidity position in the short to medium term.

The re-mapping of KMC’s BCA down to 16 from 15 (in accordance with Moody’s GRI methodology), along with Moody’s assessment of a moderate level of government support that is incorporated into KMC’s rating, corresponds to the long-term issuer rating of B2. The negative outlook on the B2 rating reflects the ongoing deterioration of the company’s financial fundamentals mentioned above.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Government-Related Issuers:

Methodology Update published in July 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Almaty, Kazakhstan, KMC reported unaudited IFRS total assets of KZT103.5 billion (US$708 million) and shareholders’ equity of KZT20.4 billion (US$140 million) as of end-June 2011. The reported net loss for the first six months of 2011 amounted KZT1.2 billion (US$8 million).

SOURCES

(1) Source: Unaudited interim IFRS financial statements for the six-month period ended 30 June 2011

(2) Source: Audited Consolidated IFRS financial statements for the year ended 31 December 2010

(3) Source: Unaudited interim IFRS financial statements for the six-month period ended 30 June 2010

(4) Source: Audited Consolidated IFRS financial statements for the year ended 31 December 2009

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