BULGARIAN NATIONAL SECURITIES COMMISSION

1. CORPORATE GOVERNANCE AND THE STATE AS A PRINCIPAL THE BULGARIAN CASE Prof. Bistra Boeva, Commissioner BULGARIAN NATIONAL SECURITIES COMMISSION OECD/APG Session September 19-20, 2000 Budapest

2. Presentation Topics • Corporate Governance: the Main Initiatives • Corporate Governance: Basic Characteristics and Patterns • Corporate Governance and the State as a Principal • Is the Future Bright?

3. Corporate Governance: Main Initiatives  Large scale change of ownership due to the voucher, cash and mass privatization. Government initiated transformation of companies, privatized via vouchers, into public companies. Establishment of aregulated capital market. State initiated launch of the legal framework for corporate governance.

4. Shareholders’ Ownership Patterns and Corporate Governance Models  Highly dispersed pattern of shareholders’ownership - typical for ex privatization funds/holding companies and investment companies to have from 6,000 to 100,000 shareholders.  Currently 3,5 million shareholders in these enterprises. “Market controlled type of corporate governance”

5. Shareholders’ Ownership Pattern and Corporate Governance Models  Highly concentrated pattern of shareholders’ ownership - typical for the majority of public companies.  In 614 public companies, out of a total of 1,142, the strategic investors own more than 50% of the shares. “Insider controlled type of corporate governance”

6. Some Trends and Problems in the State as a Principal  Lack of modern rules and legal framework for state participation in public companies and the exercise of their corporate governance rights.  Several types of behavior by the state as a principal in public companies:  Modern attitude and active position of the principal’s representatives in corporate governance.  Lack of interests in cases of minority shareholder status.  Interference of the principal’s representatives beyond their authority as shareholders.  Positive changes in behavior patterns from conflicts/tensions toward public/private partnership.

7. Corporate Governance and the State in a Transition Economy The State As A Regulator  Establishes the legal framework for Corporate Governance.  Monitors compliance with the Law and the Rules.  Encourages capital market development and corporate governance “best” practices.

8. Corporate Governance and the State in a Transition Economy The State As A Principal In The Public Companies  Majority or minority shareholder.  Legal framework: Privatization Act.  Organizational framework: Various ministries, following their own policy and procedures, exercise the State’s shareholder rights, e.q. Ministry of Industry; Ministry of Regional Development; Ministry of Transport, etc.

9. Corporate Governance Patterns in Bulgaria One or Few Models?  Market controlled pattern or two-tier system  Supervisory Board and Board of Directors  Insider controlled pattern or one-tier system.  Managing Board

10. Is the Future Bright?  BNSC’s policy of encouraging corporate governance development.  Other corporate governance initiatives for Bulgaria.  Proactive policy of improvement of corporate governance practices in Bulgarian public companies.  Special initiative for the equal treatment of the State in its capacity as a shareholder - legal, economic and educational measures.  Future privatization of enterprises and the State’s position as a shareholder.

11. Public Companies in Bulgaria

12. Registered Economic Units By Kind And Ownership As Of December 31,1998

13. Privatized Assets Compared To Assets Subject To PrivatizationIn The Period January 1,1993 - August 31, 2000

14. Privatized Assets Compared To Assets Subject To PrivatizationIn The Period January 1,1993 - August 31 ,2000

15. Bulgarian National Securities Commission The Bulgarian National Securities Commission has approximately 120 employees. The Commission supervises:  104 investment intermediaries (76 non-banking institutions and 28 banks);  4 investment companies (one open-end investment company);  The Bulgarian Stock Exchange;  The Central Depository AD; and  More than 1,000 public companies.

16. Bulgarian National Securities Commission The BNSC’s efforts target: - development of an efficient and transparent capital market as an important prerequisite for the successful transition of the economy; - protection of shareholders; - increase confidence of local and foreign investors in the Bulgarian capital market; and - establishment of pension funds, mutual funds, etc.

17. Law on Public Offering of Securities Effective January, 2000 An important merit of the new law is the detailed statutory elaboration of the public company, concerning a considerable number of unprofessional participants on the capital market, as a result of the voucher privatization. Statutory guarantees have been set up concerning the rights of the shareholders, avoidance of the infringement of these rights and non-admission of speculations with them. A number of new points have been introduced, not existing in the hithero prevailing legislation and in the Company Law of the country.

18. Bulgarian National Securities Commission Considerably more alleviated regime has been introduced of the tender offer as a particularly important element of the trade in securities and the restructuring of the economic entities. Where a person owns 50% of the voting right in a public company which secures to him a control over the same, he should make a mandatory offer to the remaining shareholders with a voting tight to purchase their shares or to transfer the necessary number of shares, so that he may own directly or through related persons less than 50% of the votes.