Presentation to Prague Stock Exchange Privatisation IPOs in Central & Eastern Europe

1. Presentation to Prague Stock Exchange Privatisation IPOs in Central & Eastern Europe 18th November 2004

2. Table of contents • CEE companies privatised through the public markets • Overview • Individual company track records • MOL / PKN • Handlowy / Pekao • Richter / OTP • Pliva / KGHM • Cesky Telecom / TPSA / Matav • Case Studies • Gedeon Richter – anti takeover mechanism • Bank Handlowy w Warzsawie – independence through tri-partite structure • Conclusions • Criteria for success • Lessons for the Czech Republic • A Czech solution? • Credentials

3. What is special about a public markets transaction? • Offer for sale on the stock exchange to financial investors who • make portfolio investments, spreading their risk across a variety of companies’ shares • invest relatively small amounts of their portfolio in relatively small shareholding percentages in any one company • and so have no time, interest or ability on their own to influence or control the company in question • It is NOT a strategic sale to a trade buyer: • who would seek to control the board, management and the business directly • who might be expected to bring in management, technological and business expertise • Neither is it a sale to a private equity investor who might also: • seek management control • bring in expertise • plan on a medium term exit • Including though the public markets • Two categories of investors • retail - important for liquidity • – they have 2 votes • - vote as a shareholder at general meetings of the company • - vote as a member of the public in a general election for the new government (important to remember in privatisations) • institutional -mostly global emerging markets and dedicated emerging European funds for CEE stocks plus hedge funds -larger stocks can also attract general European and global funds

4. Initial Public Offerings in CEE since 1990

5. Initial Public Offerings in CEE since 1990

6. Initial Public Offerings in CEE since 1990 • Privatisation by IPO is clearly normal in CEE • Maintaining independence has been possible, abuse rare • IPO can be done after or before strategic sale • Overall experience has been positive • The process has driven the development of stock markets across the region • Liquid, transparent markets • Spread of popular share ownership • Facilitated pension reform and the development of private pension funds

7. 14 12 10 8 (USD) 6 4 2 0 26/11/01 26/11/02 26/11/03 26/11/00 26/11/99 PKN ORLEN MOL and PKN share price since privatisation 80 70 60 50 MAR 1998 SPO FEB 2004 ABB • PKN Orlen • Regional champion? 40 (USD) MAY 1997 SPO 30 20 10 0 28/11/98 28/11/99 28/11/00 28/11/01 28/11/02 28/11/03 28/11/95 28/11/96 28/11/97 JUN 2000 SPO MOL • MOL • Regional champion? • 10% voting limits • Gas prices

8. 45 40 35 30 25 USD 20 15 10 5 0 07/07/97 07/07/98 07/07/99 07/07/02 07/07/03 07/07/04 07/07/00 07/07/01 HANDLOWY PEKAO Bank Handlowy and Pekao share price since privatisation • Bank Handlowy • Independence on privatisation • IPO • “Strategic” investor • Special convertible bonds • Citigroup • – A real strategic investor • Not 100% owned • Keeping own name • Keeping listing

9. Richter, OTP share price since privatisation MAY 1997 SPO 140 • OTP • 5% limit on (foreign) shareholdings 10 % on others • Strong management influence 120 100 80 NOV 1995 SPO USD 60 40 30 20 25 0 20 OCT 1999 SPO 09/11/01 09/11/02 09/11/03 09/11/04 09/11/97 09/11/98 09/11/99 09/11/00 09/11/94 09/11/95 09/11/96 15 USD OCT 1997 SPO 10 Gedeon Richter 5 • Gedeon Richter • “Shareholder protection measures”/ • anti-takeover mechanism 1995 • Exchangeable bond 2004 • Pharmaceutical reimbursement rates 0 10/08/98 10/08/99 10/08/00 10/08/01 10/08/02 10/08/03 10/08/04 10/08/97 10/08/95 10/08/96 OTP

10. MAY 1998 SPO Pliva, KGHM share price since privatisation 120 100 80 60 USD 40 20 12 0 10 25/01/02 25/01/99 25/01/00 25/01/01 25/01/04 25/01/03 25/01/98 25/01/95 25/01/97 25/01/96 8 6 USD Pliva 4 2 0 18/07/04 18/07/00 18/07/01 18/07/03 18/07/02 18/07/99 18/07/97 18/07/98 KGHM

11. 12 10 8 6 USD 4 2 0 18/11/02 18/11/03 18/11/98 18/11/99 18/11/00 18/11/01 TPSA 12 10 8 6 USD 4 2 0 14/11/03 14/11/04 14/11/02 14/11/97 14/11/98 14/11/99 14/11/00 14/11/01 Matav Cesky Telecom, TPSA, Matav share price since privatisation 30 • Cesky Telecom • Sale to strategic investors • Exit by strategic investors (ABB) 25 NOV 2003 ABB ABB 20 DEC 2002 ABB 15 USD 10 5 0 14/03/97 14/03/98 14/03/99 14/03/00 14/03/01 14/03/02 14/03/03 14/03/04 14/03/96 14/03/95 Cesky Telecom • Matav • Management control ceded too early and too cheaply • Deutsche Telekom/Ameritech • IPO • Public offerings difficult • TPSA • IPO • France Telecom JUN 1999 SPO

12. Gedeon Richter: anti- take over provisions The Second Offering • Autumn 1995, $49m, State's shareholding reduced below 50% • premium of 20% to the IPO • awarded Best Offering in CEE in 1995 by ‘Euromoney’ • CA IB: Joint Global Co-ordinator & Joint Bookrunner for all 3 Offerings of Gedeon Richter Privatisation strategy • Gedeon Richter the sole major Hungarian pharmaceutical company to be independently floated on BSE • only small investors, no strategic partner • to develop as an independent company • Shareholder protection and take-over measures – protect againstvulnerability to predators gaining control • by stealth, i.e. with no prior notification of the company or its shareholders; • without having to acquire more than 50% + 1 share; and • without having to pay to minority investors a fair market price reflecting a premium for control The Problem • Toreinforce shareholder's rights in the Company's Statutes, mimicking UK Takeover Code: • notification of shareholdings at certain levels starting at 10% • 25% limit on voting rights • mandatory take-over offer open to all shareholders once a shareholding level above 25% is reached (at a premium of 50% to the average market price; and • acceptance from holders of at least 75% of the total shares for the bidder to acquire control over and exercise more than 25% of the voting rights present at General Assembly The Solution The Reality • The reality. So long as APV held 25%+1 they could block a takeover • 2004 EU Accession – articles changed • Exchangeable Bond – see David Jennison, JPM

13. Bank Handlowy w Warszawie SA Case Study: independence through tri-partite transaction structure Objectives • prevent single foreign shareholder acquiring control • raise revenues (for planned state pension scheme) • core investor group to assist strategic development • minimise Government’s voting rights post- • privatisation • develop mass retail shareholder base • Government • Bank Handlowy • Common Solution • Tri-partite transaction structure to reconcile • objectives • public offering • core investor group sale • creation of non-voting convertible “Special • Bonds” • Reconciliation

14. Bank Handlowy w Warszawie SA Case Study: independence through tri-partite transaction structure • IPO • Institutional offering in Europe and US • PLN 838m ($211m) proceeds • 17.4x subscribed Transaction • Polish Retail • Offering • PLN 628m ($194m) • 139,766 investors • 3x subscribed • Core Investor • Sale • Group (24% fully diluted) • JP Morgan (12%) - investment banking • Swedbank (6%) - retail banking • Zurich Group (6%) - insurance • Parallel auction • 22.5m Special Bonds convertible into 24.3% of • Bank Handlowy’s share capital issued to State • can only convert once sold • in the event, destined for PZU rather than • pension scheme • Special Bonds

15. Bank Handlowy w Warszawie SA: Case Study • First Polish parallel domestic and • international offering • price range set in advance • Polish retail investors subscribe at • Maximum Price in 3 week offer period • incentives: price discount and preferential • allocation • Objectives Achieved • PLN 2bn ($600m) raised for • Ministry of State Treasury • Special Bonds contributed to • Ministry of State Treasury • (c$250m) • “Re-awakening interest in the • markets of Central and Eastern • Europe” • Time constraints • aim to close before KGHM ($450m) • (starting one year after) • conclude core investor sale in parallel with IPO

16. Bank Handlowy Postscript: Citigroup take-over in 2000 Transaction • 90% share acquired • BUT • Tender offer • Conditions • 75% maximum permitted by regulator • Citigroup obliged to sell down to 75% by end 2004 (extended?) • Bank Handlowy name to be preserved • Listing to be maintained The most independent subsidiary of Citigroup in the world? NB: Nick Kaufmann was Project Manager of the Bank Handlowy IPO while he was at Schroders

17. Criteria for success for market privatisations in CEE • Functional stock market • Liquidity • Transparency • Public confidence • "Public" fund managers and pension funds • Cash purchases vs vouchers • Political support • national interest • potential to be a national/regional 'champion‘ • Clarity on shareholding policy • Leadership and vision of senior management • Clear business and equity strategy • Managing in the interests of all stakeholders, particularly outside (foreign portfolio, financial) investors • Focus on share price • cannot over-emphasise how important this is! Conclusions

18. Lessons for the Czech Republic • Years of uncertainty over Government intentions • Continuing overhang • 35% initial combined stake sufficient to attract strategic investor and partners • Desirability of non – strategic partner? • 1990s Western telcos hot on CEE incumbents • 2000s focus now on mobiles • If and when fixed line valuations fall, telcos interest may increase • Enhance free cash flow yield • 2000s Private Equity attracted by cash flow • will they invest for the future? • will service quality be maintained/improved? • they are only in it for one thing…. TPSA CEE Telco privatisations

19. A Possible Czech Solution? Conclusions • Unlike Hungary in 1990s, Czech Republic has a secret weapon • it’s expensive but it works • it’s re-usable • it retains negative control • It can retain a premium • Czech 'takeover code' requires tender offers at 40%, 50%, 66% and 75% • approved valuation • Minimum price • Opinion of target’s Board • No limit on number of acceptances • Government can always keep 25%+1 share as a blocking minority • if monetisation desired, exchangeable bond to raise money while retaining voting rights (cf Gedeon Richter) • Limitation on voting rights to individual shareholders? • Mitigate overhang • Sell tranche of say 20 – 25% now • Commit NOT to sell further shares for say 4 years • Enhance share price performance and retain control premium

20. What sets CA IB apart CA IB has: • lead managed or co-lead managed more than 80 ECM transactions and completed more than 300 corporate finance deals in Emerging Europe • completed more than 300 corporate finance transactions in Emerging Europe • been ranked #2 for equity offerings in its core markets since 2003 • high quality and respected team of 19 equity research analysts • quality of our research recognised by numerous awards including Extel (2003: #1 CEE Research) and Institutional Investor (2004: #1 research teams in Poland, Hungary and Czech Republic) • a leading position in secondary market (sales and trading) in the region (including GDRs) selling to key institutional investors • depth of coverage in the region unmatched by any other bank • a highly experienced team of more than 100 corporate finance professionals dedicated exclusively to the region • long term client relationships, evidenced by regular repeat business • been consistently recognised as a leading equity house and advisor in Emerging Europe No other investment bank has made the same strategic commitment to CEE and its capital markets

21. ECM credentials – Hungary 1 Joint Global Coordinator and Joint Bookrunner in the secondary offering of OTP Bank OTP MOL Joint Global Coordinator and Joint Bookrunner in the secodary offering of MOL US$162m US$315m 1999 1998 Joint Global Coordinator and Joint Bookrunner in the secondary offering of OTP Bank Joint Global Coordinator and Joint Bookrunner in the secodary offering of MOL US$213m US$301m 1997 1997 Joint Global Coordinator and Joint Bookrunner in the Initial Public Offering of OTP Bank Joint Global Coordinator and Joint Bookrunner in the Initial Public Offering of MOL US$230m US$89m 1995 1995

22. Joint Global Coordinator and Joint Bookrunner in the secondary offering of Gedeon Richter Joint Global Coordinator and Joint Bookrunner in the secondary offering of Gedeon Richter Joint Global Coordinator and Joint Bookrunner in the Initial Public Offering of Gedeon Richter Advisor to Gedeon Richter on the introduction of an employee share option scheme US$218m US$49m US$58m 2003 1995 1994 1997 ECM credentials – Hungary 2 Joint Bookrunner in the secondary offering of Matav Richter Matav US$348 million 1999 Joint Bookrunner in the Initial Public Offering of Matav US$1,040m 1997

23. ECM credentials - Poland Joint Global Co-ordinator, Joint Bookrunner in the secondary offering of PKN Orlen Softbank PKN Financial Adviser and Global Co-ordinator of the convertible bonds issue US$8m US$509m 2002 2000 Adviser to the majority shareholder of Softbank on the increase of its Softbank stake Co Manager in the IPO of PKN Orlen PLN20m US$547m 2002 1999 Financial Adviser and Lead Manager of the convertible bonds issue (Management Option Programme) Lead Manager, Bookrunner and Domestic Lead Manager of the IPO of Softbank N/A 1999 US$38m 1998