The 'A+' rating indicates that Kursk region qualifies as highly creditworthy federal subject of Russia, the risk of a failure to meet liabilities in time being insignificant.

The credit rating of Kursk region primarily reflects its moderately low public debt, growing operating budget revenues, high economic diversification and acceptable economic growth rate.

For 10 months in 2014, the public debt of Kursk region decreased by almost 20% to RUB 4,223 million as of November 1, 2014. Vladimir region was the only one federal subject of Russia's Central Federal District with a smaller public debt (RUB 3,968 million). The level of Kursk region's debt burden in relation to its consolidated budget revenues was about 8.8%, almost matching the 2012 result (8.1%) and much better than the 2013 level (11.0%). It should be noted that even in 2013 (according to results of the Russian Ministry of Finance's monitoring procedure pursuant to Order 552 as of December 3, 2010), the region had one of the smallest public debts (the ratio of public debt excluding publicly funded loans to total annual regional budget revenues excluding uncompensated receipts) among the regions of Russia's Central Federal District 13%, against 44% on average across the Central Federal District).

The region's budget revenues are growing steadily. Consolidated budget revenues in 2013 totaled RUB 47.2 billion increasing by 4.3% year-on-year. Operating revenues increased by 6.3%, tax receipts by 6.1%. This year, we see somewhat slower revenue growth rates: 2.3% (total revenues) and 2.5% (operating revenue) as of November 1, 2014.

We also appreciate the growing contribution of tax receipts to the consolidated revenues of Kursk region as a positive rating driver. Their share increased from 64.3% to 69.4% in 2010-2013, and further improved to 71% as of November 1, 2014. The amount of profit taxes transferred to the regional budget increased by more than 50% for the same period, an indirect evidence of the sustainable development of businesses in the region.

In 2013, the budget performance ratio on the revenue side was 103%, indicating a good local fiscal discipline. According to the Russian Ministry of Finance's annual monitoring report, Kursk region is one of the top performers among Russian regions maintaining a high level of regional financial resource management. For 10 months of 2014, the region collected 83.0% of the target revenues. Given that the revenue accumulation level was 80.0% at the same moment in 2013, there is every reason to believe that the region will fully execute the 2014 budget.

The regional economy can be recognized as well-diversified and steadily developing. After a slowdown in 2013, the industrial production index (taken for the 11-month period for rating purposes, compared with the same period in 2013) was 106.4%, agricultural production index reaching 114.4%. The gross regional product (GRP) of the federal subject grew by 7.9% in 2013 to reach RUB 273.9 billion (according to regional estimates); the government of Kursk regions expects similar results in 2014.

The annual research of the regions' relative credit capacities conducted by CJSC AK&M Rating Agency also indicates a moderately high credit standing of Kursk region compared with other federal subjects of Russia. In 2013, Kursk region maintained its 27th position among 83 subjects of Russia in the cumulative level of relative credit capacity. Our experts appreciate the relatively high performance of the region in terms of the relative size of public debt, the budget deficit to revenues ratio and the balance of profits and losses at major and medium-sized businesses.

The rating of the federal subject is constrained by its budget gap and moderately low GRP per capita.

Since 2011, Kursk region has been running a budget deficit, although its relative size is not catastrophic. In 2013, the budget gap reached 4.6% of the region's consolidated revenues, 6.2% of its tax and non-tax receipts (the regulatory guideline being no more than 15%). In the latter case, Kursk region achieved the best (lowest) result among the 14 (out of 18) subjects of the Central Federal District running a budget deficit in 2013. As of November 1, 2014, the region's budget gap was ca. 1.9% of its consolidated revenues.

Despite the GRP growth commensurate with the all-Russian level, the GRP per capita is still trailing the average gross product per capita level in Russia and the Central Federal District (8th position among the 18 regions of Russia's Central Federal District, 44th in Russia in 2012, 62% and 72% of the average level factoring in the purchasing-power parity). This underperformance is partially offset by the high ratio of household income to consumer expenditure exceeding the average Russian level).

Another risk factor for Kursk region is the foreign trade deficit in the amount of 63.1 million US dollars for the 9-month period in 2014, compared with a foreign trade surplus amounting to 10.6 million US dollars for the same period in 2013. AK&M experts particularly highlight the twofold slump in the turnover with China (primarily on the export side), contrary to the overall trend of strengthening and expanding economic relations between Russia and the People's Republic of China.

The crisis effects in the economy have impaired the financial performance of the regional enterprises. In particular, the balance of profits and losses in the corporate segment for the 10-month period in 2014 was only 82.6% of the level achieved in January-October 2013.

Kursk region, a federal subject of the Russian Federation located in the southern part of European Russia, is part of Russia's Central Federal District. Its administrative capital is Kursk city. In 2012, the region accounted for 0.47% of Russia's gross domestic product.

This press release is based on the Statement of assignment of a credit rating to Russia's Kursk region.

The 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.

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

Phone: (495) 916-70-30, Fax: (499 132-69-18