The 'B++' rating indicates that the State Business Support Fund of Kaluga region qualifies as a sufficiently reliable borrower (the highest tier of the 'B' rating category). Risk of a delay in meeting liabilities is moderate, restructuring risk for a loan / part of a loan 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 institution () providing microlending services to SME businesses registered in the region.

The institution rating reflects a steady growth of the number and amount of loans provided by the fund and acceptable levels of standard performance indicators.

The Fund registered as a institution in 2011 concluded 56 contracts for a total amount of RUB 42.5 million before the end of the year. In 2012, the number of

As of October 1, 2013, the institution's equity capital adequacy was estimated at 68.7%, the minimum percentage required being 15%. The lending efficiency has been far above the minimum level since 2012. The institution's operational efficiency is also quite impressive, the opex to loan portfolio ratio as of the same date being 3.8%, against the maximum acceptable value of 30%.

The main negative rating driver for SBSF Kaluga is the high level of arrears in the current portfolio (ca. 20% of the total debt balance attributable to the financial facilities provided as of October 1, 2013). Almost one in three borrowers failed to meet the debt schedule, more than half of such problem loans being more than 360 days in arrears. The portfolio-at-risk ratio is above the maximum acceptable level. These weaknesses, given the relative percentage of arrears on loans to SME businesses in the region of ca. 3.0-3.5%, indicate a flawed evaluation method for the borrowers' credit worthiness and consequently, a poor risk management system of the

We appreciate the Fund's efforts to recover the loan arrears, with almost RUB 1.5 million in distressed debt collected from the borrowers in 2013, but the amount recovered is less than 10% of the total arrearage, and we do not rule out that some of the hopeless debt will have to be written off, producing a loss unlikely to be offset by the Fund's operating profit.

The institution's lower operational sustainability (operating expenses and leverage growing faster than earnings) is also working against its rating.

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

The Fund which has been lending to SME businesses since the early 2000s was officially registered as a institution in 2011. Since then, the Fund has provided over 200 s for a total amount of ca. RUB 163 million.

As of October 1, 2013, the Fund's portfolio (loan debt balance) amounted to RUB 86.7 million including RUB 17.5 million in arrears.

This press release is based on the statement of assigning a 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 Fund's reliability and shall not be construed as advice on the purchase and sale of securities or the provision of loan facilities.

CJSC &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 &M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993.

CJSC &M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).

CJSC &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.