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Capital Markets / M&A in the Balkans - Bulgaria

Petar Atanasov – Vice President Alexander Bebov – Managing Partner Balkan Advisory Company IP EAD (BAC Securities). Capital Markets / M&A in the Balkans - Bulgaria. Market Performance. SOFIX Index. Initial date: 20 October 2000

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Capital Markets / M&A in the Balkans - Bulgaria

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  1. Petar Atanasov – Vice PresidentAlexander Bebov – Managing PartnerBalkan Advisory Company IP EAD(BAC Securities) Capital Markets / M&A in the Balkans - Bulgaria

  2. Market Performance BAC June 2008

  3. SOFIX Index • Initial date: 20 October 2000 • Represents a correlation of the sum of the market capitalization of the companies within the index portfolio on the current day and the sum of the market capitalisation of the same on the previous day. • Only the most liquid companies listed on the regulated markets of BSE-Sofia are included in the index portfolio. • The companies in the index should meet the following criteria: capitalization of at least BGN 50 ml; not less than 500 shareholders; more than BGN 5 ml share value should be traded in the last 12 months; free-float should not be less than 10% of the total volume of the issue. • The companies in the index are: Corporate Commercial Bank, First Investment Bank, Lead and Zink Complex PLC, Holding Roads PLC, Albena, Bulgarian American Credit Bank PLC, Central Cooperative Bank, Chimimport JSC, Elana Agricultural Land Opportunity Fund REIT-Sofia, Industrial Holding Bulgaria PLC, Insurance Company Euro Ins, Kaolin AD-Senovo, M+S Hydraulic AD-Kazanlak, Monbat AD-Sofia, Neochim AD-Dimitrovgrad, Orgachim AD-Ruse, Sopharma JSC, Sparky Eltos AD-Lovech, Toplivo AD-Sofia BAC June 2008

  4. BG 40 Index • Initial launched on 01 February 2005 • The companies included are the most traded ones in the last six months. • Before being part of the index a company should have been traded on a market, organized by the Exchange, for at least 3 (three) months before their introduction into the BG 40 portfolio. Provided an issue has been transferred for trading from one market segment to another, the first quotation date of the issue shall be assumed as its first trading date. • The companies in the portfolio will always be 40. BAC June 2008

  5. BG TR30 Index • Initial dateof the index is 03 September 2007 • The index is based on the price performance of the shares and each issue has equal weight. • The market capitalization of each issue should not be less than BGN 10 ml. • The free-float should not be less than 10 per cent of the total volume of the issue. • The size (amount) of each issue should not be less than 250,000 shares. BAC June 2008

  6. BG REIT Index • Like BG TR30, this index was introduced also on 03 September 2007 • BG REIT is an index based on the free-float adjusted market capitalization of some special investment purpose companies that operate in the field of securitization of real estates and/or land, i.e. real estate investment trusts (REITs). • All issues should be traded on the regulated market. • The issues should have been traded on a market, organized by the Exchange, for at least 3 (three) months before their introduction into the BG REIT portfolio. • The market capitalization of each issue should not be less than BGN 5 ml. • The value traded in each issue during the last 12 (twelve) months should not be less than BGN 1.5 ml or the number of trades in the issue during the last 12 (twelve) months should not be less than 750 transactions. • The free-float should not be less than 15 per cent of the total volume of the issue. BAC June 2008

  7. SOFIX index 1-year growth • The Compound Annual Growth Rate for the last 3 years is 22.43% • P/E 20.69 • P/B 3.13 BAC June 2008

  8. BG 40 1-year growth • The compound annual growth rate for the last 3 years is 68.79% • P/E 31.75 • P/B 2.65 BAC June 2008

  9. Interesting sectors for future growthAgriculture /Food&Food Processing • Fertile soils and favorable climate conditions • High growth potential • abt 75% of the arable land is under cultivation • production yields are abt 30% lower than EU-15 • Farming is fragmented – abt 500 thd farming units cultivating 2,9 mln ha • Land is fragmented – more than 2 mln owners • EUR 2,3 bn to be invested under the EU’s CAP in a 7 year period • Farming is attractive business with strong growth rate and high margins • Consolidation ahead

  10. Agriculture in Bulgaria • Territory 110990км2 • Arable land 3,8mln ha • Planted 2,9mln ha • Idle 0,9 mln ha • Major crops (‘000 mt): • Wheat 3300 • Corn 1220 • Barley 710 • Sunseeds 680 / Av. production 2000 –2006 / Arable land by regions Source: MAFS, USDA

  11. Agriculture in Bulgaria Grain crop by regions Oilseeds crop by regions Source: MAFS, USDA

  12. High growth potential 2,5 % annual yield growth 9 801 2,0 % annual area growth 8 365 Yield Area ’08 Crop 7 041 Bulgarian grain & oilseeds crops growth Source: Industry sources

  13. Behind the BSE Innovative SME and Financing? Current ICT Market Environment • Lack of financial instruments for both Start ups and SME • Absence of Business Angels and Venture Capitalists • SME lack size to be traded on the Bulgarian Stock Exchange • Lack of managerial and financial culture among entrepreneurs Bulgarian ICT Cluster Fills Financing Gap • Phase A (2007-2008): Start of FORENTIN platform and preparation of a pipeline of Start ups and SMEs • Phase B (2009): Creation of a Hi-Tech Equity Investment Fund Results • First investment session – April 2008 • First USA BA delegation visit in Sofia – May 2008 BAC March 2008 13

  14. Major Factors to Support BSE Growth • The legislation regulating capital markets improved during the last years, making BSE an attractive place for investors; • The liberalization of regulations on pension funds investment activities brought additional liquidity on the market with a positive effect on shares’ price; • The investor relation policy of most of the blue-chip companies went through a significant evolution; • The large IPO-s of the last three years helped improve the liquidity of the market, attracted new investors (both individual and institutional, domestic and foreign) by bringing large and financially strong companies to the market; • Bulgaria’s EU accession on January 1st, 2007 had a very positive impact on the market. The inflow of new cash, the increase in the number of investors, both domestic and foreign, and the increase in the number of attractive companies traded resulted in a top performance of BSE indices. BAC June 2008

  15. Latest developments – what happened? • BSE became member of XETRA – the trading platform of Deutsche Bourse • The unfavourable situation on international capital markets affected also the BSE • The market seemed overbought to most of the investors, compared with other regional markets • Most liquid stocks suffered the most • Facing redemptions • Foreign investors closing positions on riskier markets • Servicing leverage, obtained to buy stocks, mostly by retail investors (banks extend leverage only against liquid stocks) BAC June 2008

  16. What to expect? • Direction on the market is still not clearly defined. Factors to have impact: • Situation on international markets • Liquidity in institutional investors • Company fundamentals • Most of the companies showed very strong financials for 2007, showing strong growth in sales and profits • Connection to the servers in Germany of Deutsche Bourse (XETRA) is expected to improve the flows • The market looks quite reasonably valued now and many positions are looking attractive again • Bulgaria is a high-growth market, providing good opportunities for returns higher than EU-average • Abnormal growths and drops are less probable in the future with the development of the market, its liquidity and the more reasonable assessment of risks on the part of the investors BAC June 2008

  17. Balkan Advisory Co. Securities • BAC Securities is passported for securities activities in Bulgaria and Romania, and has done sizeable corporate finance and securities activities across Bulgaria, Romania and former Yugoslavia • Balkan Advisory Company (BAC) has worked on many projects concerning the issuing of bonds and shares with big investment banks like UBS, Deutsche Bank, HSBC, Morgan Stanley; with Deutsche Bank during the Brady bonds swap • BAC has placed the bonds of the Bulgarian National Railways, as well as many other securities, issuing of which has been reported in Euroweek, Euromoney,Financial Times и International Financial Review. BAC has prepared about 10 rating reports for S&P, Moody’s и Fitch; we have prepared the issuing of the first mortgage bonds in Bulgaria, issued by Post Bank • The company has offices in Bulgaria (around 15 professionals), Serbia, Macedonia and Romania (12 professionals) • The experience of BAC is a result of our cooperation with local investment funds and banks and with more that 30 international institutional clients. In this sense, the company is a bridge to foreign portfolio investors from the USA, Great Britain, Scandinavia, Pribaltica, Austria, and the Balkans. BAC has worked with the following issuers of bonds and shares: Chimimport PLC, Bulgarian River Shipping JSC, Lev-Ins, Bulgarian National Railways, Bulgartabak Holding, Kaolin PLC, and Sparky-Eltos. In 2007 BAC had one of the biggest trade volumes on the Bulgarian Stock Echange. The company served as an intermediary during the buying of shares of the first Bulgarian REIT by Julius Baer and Immoeast. BAC June 2008

  18. Bridge to foreign portfolio investors BAC has worked with the following issuers from Bulgaria: Chimimport PLC, Bulgarian River Shipping JSC, Lev-Ins, Bulgarian National Railways, Bulgartabak Holding, Kaolin JSC, Sparky-Eltos Our clients are institutional investors in Bulgarian shares and bonds from the USA, Great Britain, Scandinavia, Pribaltica, Austria and the Balkans. BAC in the press: Financial Times, October 11, 2007

  19. About BAC Balkan Advisory Company Sofia Office 9 Positano Sq., entr. A, building 2, fl. 5, apt.15, Sofia, 1000, Bulgaria Tel: (+359 2) 981 3559 Fax: (+359 2) 980 3954 GSM: (+359 898) 655 401 E-mail:alex@bac.bg, petar@bac.bg, Romania Bucharest Office Belgrade Office Terazije 27/I, 11000 Belgrade, Serbia and Montenegro Tel/Fax: (+381 11) 324 6913, 324 6900 E-mail: radmila5@yahoo.com For further information you may also visit our website: www.bac.bg BAC June 2008

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