DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH

1. DEG – Deutsche Investitions- undEntwicklungsgesellschaft mbH 5th DFI CONFERENCE ON CORPORATE GOVERNANCE Adopting and Implementing a Common CG Methodology and Tools for the Due Diligence of Investment Processes Jeddah, Kingdom of Saudi Arabia – January 25th – 26th, 2011

2. Content • DEG - who we are and what we do • General Aspects of Corporate Governance relevant for DEG • Where do we stand in respect of the implementation of the DFI Approach Statement • Experiences in implementing the DFI Approach Statement and/or Toolkit on Corporate Governance (Joint FMO-DEG refinements on the tools)

3. DEG - who we are and what we do Corporate data Founded: 1962 Employees: 418 Seat: Köln Shareholder: KfW, Frankfurt Equity 2009: EUR 1,336 million Total assets 2009: EUR 3,643 million New commitments in 2009: EUR 1,015 million (supporting investments worth EUR 4,700 million) Portfolio 2009: EUR 4,701 million (supporting investments worth EUR 32,100 million)

4. DEG - who we are and what we do • One of the largest European development finance institutions for long-term project and corporate financing • Nearly 50 years of experience as a development finance institution in more than 130 countries • Investments • of private companies in developing and transition countries • only in profitable projects that contribute to sustainable development in all sectors of the economy, from agriculture to infrastructure and manufacturing to services • Commitments only if an effective development policy impact is obtained and environmental standards and social principles are met

5. General Aspects of Corporate Governance relevant for DEG (national level) • Starting 1998 several legal reforms in Germany emphasize Corporate Governance • Corporate Sector Supervision and Transparency Act (“KontraG”); • Stock Corporation Act (Aktiengesetz, AktG) and Accounting law by means of the „TransPuG“; • Corporate Governance Code (in 2002) on a federal level (harmonization of German Corporate law aspects with international standards) • Management Board Compensation Act (VorstAG of 5. August 2009) • Risk Limitation Act (Risikobegrenzungsgesetz) of August 2008 • Securities Trading Act (WpHG)

6. General Aspects of Corporate Governance relevant for DEG (company level) • Most recent: Public Corporate Governance Code (“PCGC”; governing the management and oversight of companies in which the Federal Republic of Germany is a [direct or indirect] shareholder; Note: KfW is a state owned entity] • PCGC is incorporated into the body of DEG’s Articles of Association • Commitment to Corporate Governance shall be put into practice by the management and the supervisory body declaring each year that the corporation has complied and continues to so comply with the recommendations of the PCGC • Deviations from the recommendations must be explained and justified; such declaration is to be made permanently available to the public (either on corporations' website or in the electronic version of the Official Gazette (Bundesanzeiger) and is to be published as part of the corporate governance report • The audit of the annual financial statement also is to review whether the declaration regarding the PCGC was made and published

7. General Aspects of Corporate Governance relevant for DEG (Financing criteria) General Investment Criteria “Cooperation” Criteria Qualified Management • proven track record • transparent and open to innovations / new standards Good Corporate Governance • transparency • clear division between shareholders and managers Modern Environmental and Social Standards • environmental and social standards acc. to international standards Sound Business Model • feasible and realistic acc. to environment and capacity • competition and market analysis • investment/expansion Plan Co-investments in Expansion / defined Exit Strategy • medium to long-term approach (5-7 years) • alignment of interest with currentowners / stakeholders • transparent reporting tools and standards • international accounting standards and reputed auditing firms

8. Where do we stand in respect of the implementation of the DFI Approach Statement (1-2) • Develop or adopt guidelines, policies or procedures on the role of corporate governance in our due diligence and investment supervision operations DEG analyzes auditing, board and management structure, compliance (in the broadest sense), financial transparency and ownership structure and exercise of control rights in its investee companies (lacking a standardized approach and without labeling it Corporate Governance) • Training on corporate governance DEG offers programs focused on staff and representatives within DEG holding a Board or Executive position in our project companies; very recently DEG invited other EDFI-members for joint trainings

9. Where do we stand in respect of the DFI Approach Statement (3) • Encourage investee companies to observe local codes of corporate governance • Due diligence addresses this issue (from time to time and depending on further matters) • Contractual: financing agreements (also where DEG acts as mere lender) deal with corporate governance matters; standard wording: • The Borrower makes the representations and warranties set out in this Clause to each Finance Party …. It has … acknowledged all requirements as set out in Schedule __ (Corporate Governance Guidelines) …. • The undertakings in this Clause __ remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents ... The Borrower shall … use … best efforts to comply with the corporate governance guidelines ….. • Sanctions? Event of Default? Margin Ratchet?

10. Where do we stand in respect of the DFI Approach Statement (4) • Promote the use of internationally-recognized financial reporting standards and encourage investee companies to adopt or align their accounting principles and practices to such standards Contractual requirements as to financial statements and auditors: • “Each set of financial statements …….shall be certified by a director of the borrower as fairly representing its financial condition……..” • “The borrower shall procure that each set of financial statements delivered …… is prepared using [GAAP]/[IFRS] ………………” • a description of any change necessary for those financial statements to reflect the [GAAP]/[IFRS], accounting practices and reference periods upon which its Original Financial Statements were prepared; ……………. “ • “The Borrower shall not appoint any company, firm or individual to replace the Auditors without the prior written consent of the Lenders.”

11. Where do we stand in respect of the DFI Approach Statement (5) • Collaboration with other DFIs • European partner agencies under the organizational umbrella of the EDFI • particularly intensive with FMO and PROPARCO • project related work: risk assessment, appraisal mission, credit proposal, dedicated lead manager, joint financing agreement • joint deal sourcing, joint training sessions, development of joint standards • closely with EIB, EBRD, IFC and a variety of other regional and local development corporations

12. Experiences in implementing the DFI Approach Statement and/or Toolkit on Corporate Governance • Internal factors (within the institution) • No standard yet – no harmonized approach, neither within the organizations nor with other DFI’s • Strong demand for guidance and clarification • Awareness is there • On the other hand: no clear understanding on the facets of Corporate Governance (rather vague knowledge; one term - different meanings) • multi-faceted subject - moving target • People will generally appreciate an instrument like the toolkit • Focus on matrix and keep supporting documents optional • Important not to overburden staff by putting to much analytical tools on them (in particular a problem for smaller DFI’s) • Various aspects have been covered under other “headings”– in one way or the other (labelling) • Put different brains together (staff from different departments and backgrounds)

13. Experiences in implementing the DFI Approach Statement and/or Toolkit on Corporate Governance • External factors (regional/local environment) • Sound corporate governance is reliant on external marketplace commitment and legislation, plus • a healthy board culture which safeguards policies and processes • Consequently not easy to develop standardized tools • No “one size fits all” approach • External factors (client/investee company) • Acceptance - in many cases - depends from the seize (family run entity versus larger corporation) • Awareness exists • Cost and administrative aspects need to be addressed and dealt with • Technical assistance program by the DFI’s?

14. Experiences in implementing the DFI Approach Statement and/or Toolkit on Corporate Governance • Consequences for the Toolkit • the right time to bring it to the organization • “Learning instrument” that will be adjusted following the experiences of the users • easy to handle for internal staff (investment officer) in charge of this • avoid duplications with similar topics (for ex. legal dd. questionnaire and toolkit) • meet with the acceptance of the client / investee company • it should not involve to much additional costs on clients side (without corresponding consideration) • over the time the additional value should be measurable and traceable • Open: Incentives and/or sanctions?

15. Get in touch! Markus Gabbert Deputy General Counsel Legal Department DEG – Deutsche Investitions- und Entwicklungsgesellschaft mbH Kämmergasse 22 50676 Köln Germany Phone: ++49 (0) 2 21 / 49 86 - 1341 Telefax: ++49 (0) 2 21 / 49 86 - 1361 Internet: www.deginvest.de