Standard & Poor's revise LenSpetsSMU credit rating outlook (press release of the company)

08.10.2008

Standard & Poor’s have taken the decision to revise LenSpetsSMU’s credit outlook rating from positive to stable following significant turbulence in the Russian equity and credit markets in the past week.

On October 7th, 2008, Standard & Poor's Ratings Services revised its outlook on LenSpetsSMU from positive to stable. At the same time the company affirmed the ‘B’ long-term and ‘B’ short-term corporate credit ratings and the ‘ruA’ Russian national scale rating.

The outlook revision reflects the weakened lending conditions in Russia due to the significant turbulence in the local equity and credit markets in recent weeks, with potential knock-on effects for real estate demand and prices. The consequent increased uncertainty surrounding the company's business prospects and tightened liquidity has diminished the likelihood of an upgrade in the near term.

Conversely, analysts at Standard & Poor’s state that the group's leading position in its core market, St. Petersburg and its region, combined with an established track record and brand recognition, moderate these risks. LenSpetsSMU's control of all the stages of a project's evolution allows it to manage quality and costs well. The company is also able to effectively address key administrative and legal risks.

In a press release, Standard & Poor’s drew particular attention to the fact that LenSpetsSMU has been able to improve its profitability because of dynamic trading activity in the St. Petersburg real estate market, which supported strong price appreciation for residential units, and management's increasing focus on managing risks and expanding economies of scale. As a result, the EBITDA margin strengthened to about 28% for the 12 months to June 30, 2008, up from 10% in 2006.

The stable outlook reflects Standard & Poor’s expectations that despite the current stress environment, LenSpetsSMU will be able to address its financing needs by prudently managing its operating costs, leverage position, and financial risk exposure, together with improving its liquidity position. At the current rating level LenSpetsSMU is expected to maintain its debt to EBITDA at or below 3.5x.

The management of LenSpetsSMU accepts the rating agency’s decision, taking into account the fact that it took place after an analogous change with respect to the sovereign credit rating of the Russian Federation (on 19th September, 2008), where the forecast was also revised from positive to stable. At the same time, LenSpetsSMU, which has successfully survived many crises during its more than 20-year history, continues to adhere to a balanced strategy of development. According to all basic operating indicators, 2008 was the most successful year in our entire history, which made it possible to place a good foundation for further development for further years. A long, flawless credit history with conservative financial policy makes it possible for the company to preserve close collaboration with Russian and international credit establishments, ensuring priority access to debt capital markets even in the current international financial crisis.

A full version of Standard & Poor’s press release is available here.

REFERENCE:

LenSpetsSMU was the first and remains one of only two Russian construction companies to receive and have published a credit rating from the largest and most conservative international rating agency - Standard & Poor's.

The`B' international scale rating reflects the possibility of the full and prompt processing of bills.

The ‘ruA’ national scale rating attests to the fact that a company is characterized by a moderately high ability to carry out its bills promptly and completely, relative to other Russian issuers.

CONTACTS:

Mikhail Dukhovny, Director of Corporate Communications Department
tel. (812) 348-21-25, email: dukhovny_m@lenspecsmu.ru

Viktor Vasenev, Deputy CFO
tel. (812) 348-09-95, email: vasenev_v@lenspecsmu.ru