CJSC AK&M Rating Agency assigned the ‘A’ microfinance institution credit rating, with a stable outlook, to the Autonomous Establishment of Republic of Kalmykia ‘Center of enterprise development’ as per the national scale.

The ‘A’ rating indicates a high credit standing of AE RK CED as a microfinance institution. Risk of a delay in meeting liabilities is relatively low.

AE RK CED grants loans to SME businesses subject to requirements of the Ministry of Economic Development of the Russian Federation and the procedure approved by the Ministry of economy and trade of the Republic of Kalmykia. This procedure was developed and is being implemented to provide access of SME businesses to financial resources pursuant to the republican target assistance program.

As of 1/1/2013, the total amount of loans granted was RUB 302.9 million.

The rating score is supported by the compliance with the regulatory requirements of the Ministry of Economic Development of Russia, the efficient use of funds granted, and the sustainability of AE RK CED.

The operating results of AE RK CED show that the institution complies with requirements set by the founder and the regulatory authority. The average loan amount under the microlending program does not exceed RUB 700 thousand; AE RK CED lends to more than 100 borrowers; the maximum microloan amount under the microlending program does not exceed RUB 1 million; the maximum loan maturity term does not exceed 1 year; only SME businesses qualify for financial assistance. This compliance with the key requirements for microfinance operations supports the rating score.

Over the last three years, equity capital of AE RK CED stayed in the 45.7% to 49.3% range, also meeting the regulatory requirement (at least 15%). Also, we appreciate the company’s operational sustainability and effective use of funds. The funds allocated for assistance to SME businesses in 2011 and 2012 were used with maximum efficiency. While the amount of funds earmarked for SME development purposes was equal to RUB 96.8 million in 2009-2010, the aggregate microloan portfolio was RUB 97.7 million in 2011, RUB 95.5 million in 2012. In the period under review, AE RK CED did not write off a single microloan. This compliance with the regulatory authority’s requirements in the way of microfinance operations also contributes to the rating score of the fund.

Over the period under review, operational sustainability also exceeded the recommended threshold value, which qualifies AE RK CED as a sustainable institution. In 2012, its profit from operations amounted to RUB 12.39 million, exceeding the 2011 result by 38%.

Bottomline: operating in a poorly developed business segment of the region, AE RK CED still meets its specific obligations to the extent determined by the Government of the Republic of Kalmykia.

At the same time, the decreasing number of loan contracts concluded and the risk level of the loan portfolio in excess of the regulatory value exert pressure on the rating.

In 2012, the fund granted 138 microloans for a total of RUB 94.15 million, which is 26% below the result achieved in 2011. The said decrease had an impact on the amount of the current microloan portfolio. As of the end of 2012, the portfolio contained 166 microloans against 179 the year before. The amount of portfolio decreased by 2.3% to RUB 95.5 million, which is moderately restrictive on the rating.

The backlog of loan payments at the end of 2012 was RUB 5.64 million (5.8% of the total amount of financial assets intended for microlending). In the last two years, the risk level of the loan portfolio was slightly in excess of the 7% threshold recommended by the regulatory authority: by 0.9 percentage points in 2011, by 2.8 percentage points in 2012. This is another weak negative signal for the rating, although the excess percentage is not critical. Nevertheless, the backlog of payments may grow in 2013: most of the loan arrears shifted from the ‘up to 30 days’ segment to the ’91-180 days’ segment in 2011 – which means that some of the microloans will most likely have to be written off in 2013.

The autonomous institution ‘Integrated Business Development Center’ was established by resolution no. 431 of the Republic of Kalmykia Government dated November 23, 2009. The founder of AE RK CED is the Ministry of economy and trade of the Republic of Kalmykia. Pursuant to resolution 221 of the Republic of Kalmykia Government dated 7/14/2011, the autonomous institution ‘Integrated Business Development Center’ was renamed as the Autonomous Establishment of Republic of Kalmykia ‘Center of enterprise development’. AE RK CED is a nonprofit organization without an authorized capital. The auditor of the fund is Pervaya Auditorskaya Kontora LLC (First Audit Office, state registration certificate no. 1334), a member of the nonprofit partnership Auditors Guild IPBR (Russian Institutes of Professional Accountants).

This press release is based on the statement of assigning a microfinance institution credit rating to the Autonomous Establishment of Republic of Kalmykia ‘Center of enterprise development’ / AE RK CED.

The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the autonomous institution’s credit standing and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities.

CJSC AK&M Rating Agency will not incur any responsibility for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

CJSC AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993.

CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).

AK&M Ratings are recognized by the Central Bank of Russia (for providing unsecured lending facilities – Regulation 323-P), Vnesheconombank (for granting subordinated loans) and SME Bank (for its program of lending to SME businesses), RUSNANO (when selecting banks to provide cash and settlement services to project and engineering companies implementing investment projects), and the MICEX (for the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation and bond listing purposes). By a resolution of Russia’s Government AK&M Ratings count for the recapitalization of banks. Besides, AK&M Rating Agency is recognized by AHML and accredited by SRO National Securities Market Association.

CJSC AK&M Rating Agency

ul. Gubkina 3

Moscow, Russia

akmrating.ru

Press release by: A.V. Yakovenko

Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.