June 20, 2006 | Cbonds
|Standard & Poor's Ratings Services revised its outlook on the Mortgage Guarantee Fund of Kazakhstan (JSC)(MGFK) to positive from stable, following the outlook revision on the Republic of Kazakhstan (foreign currency, BBB-/Positive/A-3; local currency, BBB/Positive/A-3; national scale kzAAA), and continuing strong state support. The 'BB' long-term foreign currency counterparty credit rating on the company, and the 'kzA+' Kazakhstan national scale rating were affirmed.|
"The ratings on MGFK reflect the start-up nature of the company, whose business is focused on the provision of mortgage guarantees in Kazakhstan," said Standard & Poor's credit analyst Felix Ejgel. "The Kazakh mortgage sector is immature, its growth is difficult to predict, and the inherent risks are hard to evaluate due to the lack of empirical evidence on national mortgage default rates."
Moreover, the company's financial performance is weak due to a need to increase personnel spending and a low return on investments. The risks are partially mitigated, however, by the support MGFK receives from the Republic of Kazakhstan, its good liquidity, and low debt."
The rating approach applied by Standard & Poor's Ratings Services for MGFK uses its government-supported entity criteria. Viewing the company as a public policy-based entity, Standard & Poor's has applied a top-down rating approach in assessing MGFK's credit quality, which is based on the support it receives from the national government. The absence of a liquidity mechanism or explicit state guarantee for the company's liabilities, and uncertainty about the company's policy role in the longer term explains the three-notch difference between the ratings on MGFK and those on the Republic of Kazakhstan.
Standards & Poor's expects that the company will continue to receive state support in the medium term.
"Capital injection until at least 2007 will help the company strengthen its market position and improve financial indicators without recourse to long-term debt," said Mr. Ejgel. "We will monitor the key performance statistics in MGFK's developing portfolio, such as evidence on default rates and fluctuations in house prices and values, which could affect the company's stand-alone credit quality, and the incentives for government support."
If Kazakhstan is upgraded, then coupled with the growing profitability of the company's business, the ratings on MGFK may be raised. If the company does not manage its business properly, however, and the level of state support decreases, the ratings could come under pressure.
|Full company name||Mortgage Guarantee Fund of Kazakhstan JSC (MGFK)|
|Country of risk||Kazakhstan|