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

The ‘B++’ rating indicates a sufficient credit standing of AE RK CED as a guarantee institution. Risk of a delay in meeting liabilities is moderate.

One of the fund’s core activities is providing guarantees (sureties) for liabilities of SME businesses registered and operating in the Republic of Kalmykia, with an average headcount of no more than 250 employees. AE RK CED started providing sureties on 11/25/2010.

For the two years since adding guarantee services to its profile, AE RK CED has provided 24 sureties for a total of RUB 74.8 million, which ensured loans of RUB 130.3 million from the partner banks. Sureties in the amount of RUB 3 to 5 million are the most numerous (44%). The average amount of surety is RUB 3.1 million (5.2% of the total surety portfolio, or 3% of the total amount of collateral). This ratio actually indicates the fund’s potential losses should one “average” client of the autonomous institution default.

The rating score is supported by the compliance with the regulatory requirements of the Ministry of Economic Development of Russia, the sufficient liquidity cushion, and the fund’s sustainability in the way of its guarantee activities.

The fund meets the following basic requirements of Russia’s Ministry of Economic Development. The fund stands security for a small or medium-sized business entity under loan agreements concluded for at least 1 year. The borrower provides collateral covering at least 30% of their loan obligations under the agreement concluded. Liabilities of AE RK CED under the surety agreements concluded do not exceed 70% of the total amount of SME obligations in relative terms. This scheme enables the fund to minimize the risk of default on its payment obligations arising from the surety agreements. For depositing funds with partner banks, AE RK CED’s limit for any particular bank does not exceed 50%. The fund also meets the requirement to have a positive audit report since 2011.

The fund’s bank deposit contracts provide for possible unconditional withdrawal of at least 30% of the amount deposited, within a period of no more than 14 calendar days, without losing interest. This, coupled with the funds in the current account of AE RK CED, ensures a sufficient liquidity cushion for the fund, to repay, at the partner bank's request, its obligations, should the borrower fail to repay the loan taken out from the partner bank. As of 1/1/2013, the fund’s liquidity cushion amounted to ca. RUB 38 million. It will be noted that the fund did not effect any payments related to SME businesses’ defaults on their obligations to financial institutions throughout the period under review owing to the high level of the partner banks’ loan portfolios backed by the fund’s sureties.

As of 1/1/2013, the fund’s income was RUB 7.39 million increasing by 11.46% year-on-year. The income on deposits accounts for the bulk of the fund’s structure of earnings (RUB 7.05 million, 95% of the total incomes as of 1/1/2013). The fund’s only expenses are operating expenses. As of 1/1/2013, the fund’s expenses amounted to RUB 2.6 million increasing 2.4-fold year-on-year. Therefore, the fund is generating a positive cash flow which, according to the Articles of AE RK CED, may be used for microfinance activities and provision of sureties. Over the period under review, the fund’s financial result ensured sustainable guarantee activities, which is favorable for its rating.

At the same time, the rating score is under pressure of a slower growth of sureties provided.

AE RK CED has been readily providing sureties for loans granted by partner banks to SME businesses since late 2010. 2011 saw an upsurge in the amount of sureties provided by AE RK CED (19 sureties for a total of RUB 61 million, ensuring loans of RUB 107.6 million from the partner banks). However, the amount of sureties grew slower in 2012, which exerts moderate pressure on the rating. In particular, 5 sureties for a total of RUB 14.8 million were provided.

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 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 guarantee 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

www.akmrating.ru

Press release by: A.V. Yakovenko

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