Fitch Ratings affirmed rating of Azerbaijan Mortgage Fund

Baku. 21 May. REPORT.AZ/ Yesterday Fitch Ratings affirmed the rating of the Azerbaijan Mortgage Fund (AMF) under the Central Bank of Azerbaijan Republic at the same level with the sovereign rating.

The Agency reports that it affirmed the AMF’s Long-term foreign and local currency Issuer Default Ratings (IDRs) at ’BBB-’. The Outlook is Stable.

AMF’s ratings are equalised with Azerbaijan’s sovereign ratings, reflecting the entity’s public sector status, its tight control by the sovereign through the CBA and its important role in the government’s housing finance policy. AMF also benefits from a buyback guarantee for its bonds from the Central Bank.

The Agency points out that the entity acts as the government’s agent in implementing the state’s social housing programmes and supports provision of dwelling space to Azerbaijani citizens through long-term mortgage loan.

Provision of affordable housing is a high priority for the state. This is underlined in Article 43 of the Constitution, which recognises the need to respond to the country’s housing demand. Housing demand is high and is fuelled by growing population and urban development amid a high level of old housing stock and low rate of housing area per capita in the republic.

Fitch considers that the AMF significantly relies on government funding that it annually receives in the form of equity injections. At end-2014, the accumulated state contribution totalled AZN 216 m (2013: AZN 176 m) and in 2015 AMF expects to obtain an additional AZN 50 m. In the medium term, the annual state allocation might significantly increase, although this is subject to a government decision on the accelerated growth of social housing sector in Azerbaijan.

The Central Bank supports the liquidity of AMF’s bonds on the secondary market. The outstanding bonds accounted for AZN340m at end-2014 (2013: AZN 300 m) including AZN 3 m (2013: AZN 9 m) held by AMF in its own portfolio. At April 2015, the central bank has purchased about 60% of AMF’s bonds from their holders, as the capital market was distressed following the devaluation of the manat in February 2015. This demonstrates the central bank’s willingness to support AMF in case of need. Fitch expects that AMF will continue to benefit from central bank support.

The Agency says that the rating change would be triggered by changes to the ratings of the sovereign. Changes to the legal status and public control that would lead to a dilution of control or likelihood of support by the sovereign could result in the ratings being notched down from the sovereign ratings.