CJSC AK&M Rating Agency assigned an 'A' guarantee institution rating to the State Business Support Fund of Kaluga region as per the national scale, with a stable outlook.

The 'A' rating indicates a high credit worthiness / reliability of the guarantee institution. Risk of a failure to meet liabilities in time is insignificant.

The State Business Support Fund of Kaluga region (SBSF Kaluga) is a component of the regional infrastructure intended for assistance to the development of small and medium-sized businesses in Russia's federal subject. One of the Fund's priorities is its activity as a guarantee institution providing surety bonds under loan and other debt obligations of SME businesses registered in the region, where collateral coverage is insufficient.

The Fund's guarantee institution rating is supported by the steadily growing portfolio of surety commitments, low number and amount of indemnity payments to settle insolvent borrowers' obligations, and effective recovery of such expenses through applicable recourse procedures.

As of July 1, 2013, the guarantee institution's surety portfolio (total amount of the current surety bonds undertaken by it) reached RUB 224.7 million increasing by 227% against the start of 2012 (almost equal to the average growth percentage across AK&M Rating Agency's 6-month 2013 ranking of guarantee institutions). For the next 5 months, the Fund further expanded its portfolio by 11%. The Fund's guarantee capital multiple is 96%, putting it in a position to further expand its surety portfolio without any pressure on financial viability. Most of the surety bonds were provided to borrowers engaged in the manufacturing sector, which account for almost 50% of the Fund's off-balance sheet liabilities). The sector structure of the Fund's surety portfolio generally corresponds to the target purposes of the loans provided to legal entities and individual entrepreneurs in the region.

Over its existence (since 2009), the Fund effected 4 indemnity payments to credit institutions for a total of RUB 7.71 million. The Fund's (gross) relative loss ratio is 1.6%, almost 3 times 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 2012-2013, the guarantee institution collected RUB 2.44 million from the borrowers. The recovery ratio is 31.6%, one of the best results among the guarantee institutions rated by AK&M Rating Agency.

At the same time, the Agency primarily regards the relatively lumpy portfolio of surety commitments as a negative rating driver. As of December 1, 2013, the two largest surety bonds accounted for almost 20% of the guarantee institution's aggregate off-balance sheet liabilities. The average surety bond is RUB 6.56 million. These figures imply a moderately high risk assumed by the Fund. In particular, the risk of overshooting the loss ratio threshold (regulatory risk) on the short-term horizon, estimated using our stochastic model, is ca. 14%, exceeding the upper limit of the range corresponding to the rating assigned.

The bulk of the Fund's assets of Fund are placed on deposit accounts with branches of Russia's central banks. Concentration of deposits is fairly high, the largest counterpart accounting for ca. 28% of the total amount of deposits. Today's situation in the banking sector (more frequent withdrawals of licenses from credit institutions including top-level banks) generates a risk of losing some of the guarantee capital, which could put certain pressure on the guarantee institution's financial profile.

Also, the imperfect microfinance performance of the Fund, primarily indicated by the extremely high arrears on microloans (about 20% as of October 1, 2013) is indirectly working against its rating. Potential losses on problem loans (more than half of them being over 360 days in arrears) could additionally decrease the Fund's total capitalization, with negative implications for all its activities.

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

The Fund undertook the first surety commitment in April 2009. Over its existence, the guarantee institution has concluded more than 100 surety agreements almost reaching RUB 500 million, raising 4.56 rubles in SME-targeted external investments per each ruble of public investment. As of October 1, 2013, the guarantee institution's surety portfolio totaled RUB 246.7 million, the amount of funds raised reaching RUB 557.2 million.

This press release is based on the statement of assigning a guarantee institution credit 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 opinion on the Company's credit standing and shall not be construed as advice on the provision of loan facilities, receipt of guarantees or surety bonds.

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).

CJSC AK&M Rating Agency

ul. Gubkina 3

Moscow, Russia

www.akmrating.ru

Press release by: A.V. Khibukhin

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