The 'A' rating indicates that the State Business Support Fund of Kaluga region qualifies as a guarantee institution with a high degree of financial stability and a good level of SME assistance in the region. The full or partial default risk is low.

The State Business Support Fund of Kaluga region was established in 1995 by the Kaluga territorial department of Russia's State Antimonopoly Policy Committee to finance the development of business, competition and restriction of monopolies. The Fund undertook the first surety commitment in April 2009.

The guarantee institution's rating is supported by the surety portfolio improvements, the low loss ratio and effective recovery of funds through applicable recourse procedures.

Until the end of 2013, the State Business Support Fund of Kaluga region kept expanding its portfolio of surety commitments, the amount of current liabilities increasing by 10% to RUB 250 million for 12 months of 2013). Next year witnessed a minor setback (-2%). However, the Fund's current guarantee capital multiple (94.3%) enables it to further increase its surety portfolio without any pressure on financial viability.

As of December 5, 2014, the Fund effected 6 indemnity payments to credit institutions for a total of RUB 14.9 million. The remaining debt to surety portfolio ratio (adjusted for the successful recoveries) is 1.9%, which is below the upper limit set by the regulatory authority for arrears on loans provided to non-financial businesses.

We appreciate the Fund's significant efforts to recover its expenses through applicable recourse procedures. In 2012-2014, the guarantee institution collected RUB 4.2 million from the borrowers. At the end of 9 months of 2014, the recovery ratio was 31.6%, a relatively strong result compared with other guarantee institutions rated by AK&M Rating Agency.

At the same time, the Fund's rating is constrained by the business slowdown and the weak deposit portfolio diversification.

For 9 months of 2014, the amount of sureties for the obligations of SME businesses to partner banks provided by the State Business Support Fund of Kaluga region decreased by 55% year-on-year to RUB 39.5 million.

In AK&M Rating Agency's view, the relatively lumpy portfolio of surety commitments in 2014 is also putting pressure on the Fund's rating. As of October 1, 2014, the 3 largest surety bonds (more than RUB 20 million each) accounted for almost 29% of the guarantee institution's aggregate off-balance sheet liabilities. Another point of concern is the fairly low diversification of the guarantee institution's deposit portfolio. The maximum percentage of the Fund's deposit(s) with one bank is slightly above the upper regulatory limit for a deposit per banking institution.

The State Business Support Fund of Kaluga region was registered in June 1995. Its sole founder is the Government of Kaluga region.

Over its existence, the guarantee institution has concluded 114 surety agreements exceeding RUB 500 million, raising 2.2 rubles in SME-targeted external investments per each ruble of public investment. As of October 1, 2014, the guarantee institution's surety portfolio totaled RUB 245 million, the amount of funds raised reaching RUB 1.1 billion.

This press release is based on the Statement of assignment of a guarantee institution rating to the State Business Support Fund of Kaluga region.

The credit rating, along with any information and conclusions provided in this press release, only conveys our creditworthiness opinion and shall not be construed as a recommendation to purchase or sell securities, or to lend funds.

AK&M Rating Agency shall not be held liable for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

CJSC Analysis, Consulting and Marketing 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) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.

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