The ‘A’ rating indicates a high credit standing of the institution. Risk of a delay in meeting liabilities is relatively low, restructuring risk for a loan / part of a loan is minimal.

The state autonomous institution of Vladimir region ‘SME Development and Guarantee Fund’ (SMEDGF) is a key element of the regional SME development infrastructure, also functioning as a regional guarantee institution. One of the fund’s core businesses is providing guarantees for loans and other debt obligations of SME businesses registered in Vladimir region, where collateral coverage is insufficient.

The rating score of the guarantee institution is essentially supported by the high key performance indicators, sufficiently reliable guarantee coverage, and steady growth of capitalization.

Over the period from its inception to 10/1/2012, the fund has provided 157 sureties for a total of RUB 757 million, with the result of raising extra-budgetary funds in the amount of RUB 1,671 million for financing SME businesses, more than 4% of the total loans provided by the fund’s partner banks in this economy sector of the federal subject. The total amount of sureties under the contracts in force as of 10/1/2012 was RUB 439 million, which is fairly high, given the number of small businesses in the region. The guarantee capital multiple is about 120%, indicating the highly efficient use of budgetary resources and putting the fund in a position to further expand its surety portfolio.

The guarantee fund has deposited its money in accounts with 9 credit institutions in the Top 100 largest banks in terms of assets. The maximum relative weight of the funds deposited with one bank is 25%, which is below the maximum percentage set by the regulatory authority. Financial investments of the fund are well diversified in terms of amount and maturity. These achievements indicate a sufficiently reliable guarantee coverage for the fund’s off-balance sheet liabilities.

Benefiting from consistently profitable operations, the fund is steadily increasing its capital. Since the start of 2011, equity capital of SMEDGF has increased by 12.2%, capitalization by 11.0%.

The fund’s payments under surety agreements are rare and not heavy, even though extremely irregular. The only two payments requested and met (RUB 140 thousand and RUB 15 million) fell on the second half of the year 2012; in early 2013, Promsvyazbank is expected to request a payment of ca. RUB 3 million under the surety agreement (the overdue loan amount being RUB 5,911 thousand). Our experts, however, do not consider this a grave problem, given that the fund’s loss ratio (ca. 4%) is below the regulatory threshold (arrears on the loans and other funds provided to non-financial businesses in the region at the end of 2012 being about 5.1%), with no similar payment bottleneck in the short term so far.

At the same time, large guarantees (equal or exceeding RUB 15 million) account for more than 40% of the surety portfolio, which is above the comfortable level and generates moderately high risks exerting pressure on the fund’s rating. Therefore, our stochastic model applicable to guarantee institutions estimates the risk of financial destabilization, i.e. a decrease in the net asset value on the medium-term horizon, at almost 12%.

Another negative signal for the rating is the guarantee institution’s failure to timely meet its obligations arising from surety contract no. 1456/6 as of 9/30/2010. The fund effected the payment in the amount of RUB 15 million under the surety agreement only after the Arbitration Court of Vladimir region ruled to validate the payment request of OJSC Sberbank of Russia as the claimant. This imperfection may dilute or possibly impair the guarantee institution’s further cooperation with partner banks.

The state autonomous institution of Vladimir region ‘SME Development and Guarantee Fund’ was registered on July 08, 2009. The sole founder of the fund is the Department of Business Development, Trade and Services, a structural unit of the regional government. Over its existence, the guarantee institution has concluded more than 150 surety agreements amounting to RUB 750 million, raising SME-targeted external investments of 4.5 rubles per each ruble of the public sector invested. As of 10/1/2012, the guarantee institution’s surety portfolio totaled RUB 439 million, the amount of funds raised (loan balance) being RUB 952 million. The auditor of the fund chosen through competitive tendering is Audit-Consulting Center Consuelo LLC (Vladimir city).

This press release is based on the statement of assigning a guarantee institution credit rating to the State Autonomous Institution ‘SME Development and Guarantee Fund’.

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 (as a prerequisite for including bonds in the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation base and for listing bonds). By a resolution of Russia’s GovernmentAK&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. Khibukhin, PhD in Technical Sciences
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.