The 'A+' rating indicates that the region qualifies as a highly reliable borrower. The risk of a failure to meet liabilities in time is insignificant.

The key positive rating drivers for Khabarovsk Krai are: considerable and growing budget revenues, fairly strong economic potential and growing key performance indicators, along with high relative credit worthiness.

The growing budget revenues are an argument for the rating of the region. In 2012, total revenues of the consolidated regional budget increased by 12% year-on-year reaching RUB 91.2 billion. For 9 months 2013, revenues amounted to RUB 66.8 billion, roughly matching the result achieved for the same period in 2012 (with a minor increase of 0.3%). Taxes are the main source of the region's budget revenues (69% of the total consolidated regional budget revenues in 2013).

We regard the higher economic performance (represented by the key economic indicators) as a short-term growth driver for the budget revenue base. The Ministry of Economic Development and Foreign Relations of Khabarovsk Krai has estimated the gross regional product (GRP) at RUB 436.2 billion in 2012, at RUB 466.6 billion for 10 months 2013. The key economy sectors account for no more than 20% of the gross regional product, indicating that the tax base is well diversified across economy sectors. In 2013, the transport and telecom sectors made the biggest contribution to the GRP (19.6%).

While the GRP per capita in Khabarovsk Krai is trailing the average levels in the Russian Federation and the Far Eastern Federal District, the regional industrial production growth rate and investment per capita are exceeding the respective average levels. In particular, the industrial production index of Khabarovsk Krai was 110.6% in 2012, 104.7% in January-September 2013 (against the average Russian levels of 102.6% and 100.1%, respectively), capital investment per capita in 2011 totaled RUB 0.132 million in Khabarovsk Krai against RUB 0.075 million on average in Russia.

The growing budget income, its high level in absolute terms, and the regional policy to derive most of the budget revenues from taxes against the growing economic ratios are supporting the credit worthiness rating of Khabarovsk Krai.

The annual research of the regions' relative credit capacities conducted by AK&M Rating Agency also indicates a high credit standing of Khabarovsk Krai compared with other federal subjects of the Russian Federation. In 2012, Khabarovsk Krai ranked 21st among 83 subjects of the Russian Federation in the integrated level of relative credit capacity, a lower position compared with the two previous years (16th in 2011, 14th in 2010). In 2012, the region's relative credit capacity was weakened by the growing public debt.

The rating of Khabarovsk Krai is under pressure of the growing public debt and adverse budget in 2012-2013.

One of the risk factors for Khabarovsk Krai is the heavier debt burden, its public debt growing by over RUB 5 billion since January 1, 2012 to reach RUB 8.1 billion as of October 1, 2013. This, however, is not critically high compared with other subjects of the Russian Federation: Khabarovsk Krai ranks 52nd among federal subjects in absolute public debt; the public debt to annual budget revenues ratio does not exceed 10%.

The public debt of the region is structured as follows: public budget loans (34%), loans from credit institutions (48%), and state guarantees (18%). The public debt of Khabarovsk Krai does not include debt liabilities under payment extension or restructuring agreements, indicating a high payment discipline.

The regional budget gaps in 2012 and 2013 are exerting pressure on the credit rating of Khabarovsk Krai. In 2010-2011, the budget surplus totaled 4.6% and 1.7% of the total amount of budget revenues. In 2012, the higher growth of expenses vs. revenues caused a budget gap (deficit) amounting to RUB 5.8 billion (6.4% of the total revenues). As of October 1, 2013, the budget gap shrank to RUB 0.9 billion (1.3% of the total revenues for 9 months 2013). We regard the narrower budget gap and its fairly low percentage in relation to the budget revenues as a positive signal.

Khabarovsk Krai is a federal subject of the Russian Federation located in the central part of Russia's Far East, in the Far Eastern Federal District. Its administrative capital, Khabarovsk city, is also the federal district capital. The region ranks 4th among Russia's federal subjects in the area, 34th in population.

This press release is based on the statement of assigning a credit rating to Khabarovsk Krai.

The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Bank's reliability and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities to the region.

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 Rating Agency's 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 (for the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation and bond listing purposes). By a resolution of Russia's Government AK&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.M. Krachkovskaya
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.