ROMANIAROMANIA- A MARKET OF CHOICE -- A MARKET OF CHOICE -

Romania applied in 1995 to join the EU and was admitted on 1 January 2007.

EU rules have been fully adopted in Romania in fields such as:

– corporate governance;– banking;– insurance;– financial services;– accounting;– Competition.

The energy, telecom, and transportation sectors are also significantly opened to free competition.

Romania expects to be able to join the exchange rate mechanism (ERM II) around 2012:

– aiming to join the euro-zone in 2014.

ROMANIA: OVERVIEWROMANIA: OVERVIEW

Population: Population: 21.5 mln.21.5 mln.

238,000 238,000

square kmsquare km

2000 – 2008: Romania experienced 9 consecutive years of economic growth.

During 2001 – 2008, domestic demand has been the main growth factor:

– the adoption of the 16% flat rate of tax on profits and income (in 2005) stimulated the final consumption.

Net exports made a negative contribution to real GDP growth:

– as a consequence of higher goods and services imports, due mainly to strong dependency on the energy sector, raw materials and capital imports.

Financial crisis and deterioration in international conditions change the positive course of Romanian economy:

– Q1, 2009: GDP decreased by 6,4%;– it is expected a “V” shape recession.

ROMANIA: ECONOMYROMANIA: ECONOMY

0 2 4 6 8 10

An

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

%

??

GDP GROWTHGDP GROWTH

Sources: NBR and EurostatSources: NBR and Eurostat

During transition (started in 1990), the structure of the Romanian economy has changed significantly:

– the restructuring of industry led to a reduction in its contribution to GDP from about 40% in 1990 to less than 27% at the end of 1990s;

– after 2000, the structural decline halted and the contribution to GDP made by industry growth stabilised (23% in 2008).

Shift from industry and agriculture to services:

– services sector has increased its contribution to GDP from 26.5% in 1990 to almost 50% in 2008;

– services sectors heavily concentrated in Bucharest.

Construction has recorded growth rates higher than GDP growth rates in the last years.

ROMANIA: ECONOMYROMANIA: ECONOMY

Services50%

Net taxes11%

Industry23%

Agriculture6%

Construction10%

2008: STRUCTURE OF GDP BY SECTORS2008: STRUCTURE OF GDP BY SECTORS

Source: INSSource: INS

During 2002 – 2008, both exports and imports increased:

– the faster move in imports led to an increase in trade deficit as a share in GDP.

In 2008, the balance-of-payments current account posted a deficit of EUR 16,877 million:

– 1.2 percent higher than in 2007;– export growth outpaced import growth by

4.4 percentage points;– current account deficit decreased in 2008

to about 12.3 %;– in 2009, the current account deficit is

expected to be less than 10%.

In 2008, non-residents' foreign direct investment in Romania worth EUR 9 billions (as compared with EUR 7.2 in 2007):

– covered 53.5 percent of the current account deficit in 2008 (compared with 43.5 percent in 2007).

ROMANIA: CURRENT ACCOUNTROMANIA: CURRENT ACCOUNT

%

CURRENT ACCOUNT DEFICIT/GDP CURRENT ACCOUNT DEFICIT/GDP

Sources: NBRSources: NBR

-3.7

-5.5

-3.3

-5.8

-8.4-8.7

-10.4

-13.5

-12.3

2000 20082001 2002 2003 2004 2005 2006 2007

National Bank of Romania (NBR) is the central bank of Romania:– its main objective is to maintain

overall price stability.

In 2005, inflation targeting was officially adopted as a NBR”s monetary strategy.

Continuing disinflation, which began in 2000, came to a halt in the third quarter of 2007.

Due to domestic adverse events and exogenous factors, NBR has been forced to operate changes in its monetary policy:– reference interest rate;– RMO.

ROMANIA: MONETARY SYSTEMROMANIA: MONETARY SYSTEM

3.57.5

+/-1pp 5.0

+/-1pp

4.0

+/-1pp3.8

+/-1pp3.5

+/-1pp

40.7

30.3

2.8

4.96.6 6.3

4.4*

17.8

14.1

9.38.6

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Target (Dec/Dec) CPI (Dec/Dec)

CPI CPI

Sources: NBR and INSSources: NBR and INS

%

Starting with 2004, NBR gradually reduced interest rate with the intention of achieving a sustainable slowdown of inflation:

– extended minimum reserve requirements;– introduced other prudential and administrative

measures (loan-to-income limits for household borrowing).

From the second part of 2007, demand–pull inflationary pressure forced NBR to raise again the interest rate:

– seven consecutive time increase brings interest rate above 10%.

In 2008 Q4, economic growth slowed down sharply owing to the rapidly expanding fallout from the global crisis on the Romanian economy via the foreign trade and financial channels:

– NBR decided to lower the monetary policy rate by 25 bps to 10 percent (in February) and by another 50 bps in May;

– minimum reserve ratio on foreign-denominated liabilities with residual maturities of over two years was cut to zero from 40 percent.

ROMANIA: MONETARY POLICYROMANIA: MONETARY POLICY

REFERENCE INTEREST RATEREFERENCE INTEREST RATE

Sources: NBRSources: NBR

0

5

10

15

20

25

30

35

40

%

2002 Jun. 2009

One of the main tasks of the NBR is to define and implement the monetary policy and the exchange rate policy:

– the exchange rate regime: managed float;– allows for a flexible policy response to

unpredicted shocks likely to affect the economy.

In anticipation of capital account liberalization (in April 2005 non-residents were granted access to RON term deposits), the Romania Leu started to appreciate against all major foreign currencies:

– despite NBR continued to intervene in the FX market, RON/EUR exchange rate reached the bottom of 3.12.

The trajectory of RON/EUR rate reversed at the end of July 2007:

– shift in investor appetite for riskier assets, prompted by international financial crisis;

– RON was under pressure at the end of 2008 – beginning of 2009;

Changes in FX market made necessarily the Romanian – IMF Agreement.

ROMANIA: EXCHANGE RATE POLICYROMANIA: EXCHANGE RATE POLICY

RON/EUR EXCHANGE RATERON/EUR EXCHANGE RATE

Sources: NBRSources: NBR

Feb. 2002 Jun. 2009

2.50

2.70

2.90

3.10

3.30

3.50

3.70

3.90

4.10

4.30

4.50

On March 25, 2009 Romania's Government signed a letter of intent for about €20bln loan package led by the International Monetary Fund (IMF):– the IMF will lend Romania €12.9bln;– €5bln will come from the European Union. – the World Bank will lend between €1bln and €1.5bln;– the remainder will come from other international organisations, including the

European Bank for Reconstruction and Development.

Main actions part of the Stand-by Arrangement:– maintain a strong capitalization of the banking system on the medium term:

banks are required to secure by 30 September 2009 sufficient resources to ensure solvency ratios above 10%.

– improve the capacity to respond in a timely and effective fashion in the event of bank distress;

– ensure the confidence in the banking system;– continuously improve the supervision and regulation framework;– promote some measures to ease the debt servicing by borrowers during the

crisis.

ROMANIA – IMF STAND-BY ARRANGEMENTROMANIA – IMF STAND-BY ARRANGEMENT

On March 26 in Vienna, the parent banks of the nine largest foreign banks (from Austria, Greece, France and Italy) operating in Romania have committed to:– maintain their overall exposure to Romania;– increase the capital of their subsidiaries, if needed.

After the meeting in Vienna, the NBR has conducted stress tests of Romanian banks:– results confirms that banks are well capitalized and have high liquidity buffers.

On May 19 in Brussels, in a coordination meeting, the parent banks of the nine largest foreign banks incorporated in Romania reaffirmed the commitments to take action needed to support their subsidiaries in the country.

These commitments, along with the balance of payments support package, will help Romania's banking system to:– weather the current crisis better;– restore investor confidence;– return the economy to a sustainable growth path.

ROMANIA – IMF STAND-BY ARRANGEMENTROMANIA – IMF STAND-BY ARRANGEMENT

The first post-1989 securities law, (Law no. 52/1994) was passed by Parliament in 1994:

– under the provision of this law, the National Securities Commission (“CNVM”) was established.

In 2004, a new law regarding Romanian capital market was taken into force - The Capital Market Law No. 297/2004:

– it transposed in the Romanian legislation de provisions of the EU Directives regarding capital market.

The Bucharest Stock Exchange (BVB) was set up on 21st April 1995 as a public entity that is effectively managed by its members through the Stock Exchange Association:

– on January 10, 2005 BVB changed its legal status into a joint stock company;

– the transformation of legal status has permitted the merger of BVB with the Rasdaq Electronic Exchange (BER), a process which has been wound up on November 30, 2005;

– BVB is today the unique regulated market in Romania where are traded equities and bonds:

There is another regulated market in Romania (Sibex) where are traded just derivatives products.

ROMANIA: CAPITAL MARKETROMANIA: CAPITAL MARKET

BVB

- market operator -

CNVM

- Romanian SEC -

PIATA REGLEMENTATA

PIATA

RASDAQ

1.662

companies

Cat. I21

Cat. II47

Cat. III

1

Cat. Int.

1

ARENA Trading System

71 members

equitiesrights

bonds allotment

certificatesfutures

The main conditions for being listed in first tier of BVB are as follows:

– at least three years of operation; – equity capital of lei equivalent of more than

Euro 8 millions;– a minimum net profit for the last two years of

operation (excluding financial revenues); – management performance and integrity; – adequate working capital; – 25% of their capital is to be offered to the

public.

The BVB markets are opened for trading in every working day, from 9:30 to 16:30.

The clearing and settlement of the trades concluded on the BVB markets are performed by the Romanian Central Securities Depository (Depozitarul Central):

– settlement cycle for all trades concluded at the BVB is “T+3”;

– delivery versus payment, based on BIS Model 2 - cash is being settled first by multilateral netting, followed immediately by transfer of securities;

– all securities traded on the BVB are registered in the book-entry form.

ROMANIA: BUCHAREST STOCK EXCHANGEROMANIA: BUCHAREST STOCK EXCHANGE

Market capitalization decreased its weight in GDP from about 28% in 2007 to less than 10% at the end of 2008.

From the beginning of 2008 till today, 13 new companies were listed on the BVB regulated market:

– only 5 companies have been listed following an IPO:

financial turmoil discouraged few other companies to start listing procedures.

- other 8 companies came to BVB regulated market from Rasdaq.

The BVB market capitalization is highly concentrated:

– Top 10 companies represents about 85% from total market capitalization.

The most important company listed o the BVB regulated market is Petrom (SNP):

– EUR 3,5 bln. market value;– SNP gives about 1/3 from BVB total market

capitalization (excluding EBS).

ROMANIA: BUCHAREST STOCK EXCHANGEROMANIA: BUCHAREST STOCK EXCHANGE

0

2

4

6

8

10

12

14

16

18

20

22

24

26

28

30

32

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009*

P iata r eglementata P iata Rasdaq

* Jun 2009

BVB: MARKET CAPITALIZATIONBVB: MARKET CAPITALIZATION

bln. EUR

Petrom is one of the largest oil and gas producer in South Eastern Europe, with activities in exploration, production, refining and distribution.

Petrom has a maximum refining capacity of 8 million metric tons per year.

550 filling stations in Romania and 269 filling stations in Moldova, Bulgaria and Serbia.

In 2008, the turnover of the company was EUR 4,552 mln.:

– EBITDA was EUR 969 million.

Key ratios (source: Reuters):– return on equity (%): 7.53;– total assets/equity: 1.84;– price to book: 1.07.

Petrom was privatized in 2004, when OMV AKTIENGESELLSCHAFT WIEN became the majority shareholder:

– OMV: 51.02%;– Romanian Ministry of Economy: 20.63;– “Proprietatea Fund”: 20.11%;– Others: 8,24%.

ROMANIA: BUCHAREST STOCK EXCHANGEROMANIA: BUCHAREST STOCK EXCHANGE

PETROM (SNP)PETROM (SNP)

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Jun. 20092007

RON

Increase in risk aversion kept some investors away from equities market:

– bonds market increased its relative importance on the BVB once G-bonds were admitted to trading (late 2008).

The first foreign company listed on the BVB succeeded to draw local investors’ attention:

– EBS has about 3,5% in total turnover.

The main reason for decrease in market liquidity was the less active presence of foreign investors.

The market liquidity is also very concentrated:

– TOP 10 generates about 85% from total turnover.

The companies from financial sector are the most liquid in the market:

– the five SIF’s that are listed on the BVB give more than 40% from total turnover.

ROMANIA: BUCHAREST STOCK EXCHANGEROMANIA: BUCHAREST STOCK EXCHANGE

* Jun 2009

BVB: DAILY TURNOVERBVB: DAILY TURNOVER

0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009*

Regulated Mar ket Rasdaq Mar ket

mln. EUR

SIF’s are companies that were set up in the early 1990’s as vehicles of privatization.

In accordance with the law regarding the privatization of commercial companies, five Private Ownership Funds (POFs) were established:

– each POF was allocated 30% of the share capital in Romanian companies.

In 1996, the POFs were transformed into investment companies (SIFs) and were organized as a joint stock companies:

– SIFs are now classified in the category Other Undertaking for Collective Investments (AOPC).

Free float of each SIF: 100%.

Holding threshold - 1% of the share capital of the SIFs:

– the exercise of the voting right is suspended for the shares held by the shareholders that exceed the limit.

ROMANIA: BUCHAREST STOCK EXCHANGEROMANIA: BUCHAREST STOCK EXCHANGE

SIF’s SHARESSIF’s SHARES

Jun. 20092007

RON

0.00

1.00

2.00

3.00

4.00

5.00

6.00

SIF1 SIF2 SIF3 (adj.) SIF4 SIF5

BVB: CHANGES IN THE INVESTORS’ BEHAVIORBVB: CHANGES IN THE INVESTORS’ BEHAVIOR

FACTS:

•Interest rates were sharply increased:- to keep savings in a banking account

became more attractive.

• Local investors have today the possibility to chose any EUregulated market to invest in:

- there are more than 600 foreigninvestment firm registered to

Romanian SEC; - there are some local brokers that are

present on the international market.

MiFID removed the “concentration rule” for all capital markets in the

region:- there are already OTC trade with

shares listed on the BVB;- a regional MTF could be just a matter

of time.

HOW BVBSHOULD REACTTO THIS SHIFTIN INVESTORSBEHAVIOR?

DIVERSIFYTHE

OFFER!

STIMULATETHE

DEMAND!

ENHANCETHE

INFRASTRUCTURE!

BVB: DIVERSIFY THE OFFERBVB: DIVERSIFY THE OFFER

Attract new issuers:

– working with de Government to do not abort the privatization program through capital market due to financial turmoil;

– working with private companies to list their shares: BVB could become an example once it will become a public company.

– foreign companies: EBS revealed that local investors are interested in shares issued by the most

companies in the region

Bring different financial instruments on the same infrastructure:

– shares;

– bonds;

– derivatives.

“Fondul Proprietatea” could be also one of the companies that we expect to be listed in the short/medium term.

““FONDUL PROPRIETATEA”FONDUL PROPRIETATEA”

“Fondul Proprietatea” was incorporated in 2006. Purpose:

– provide the financial resources necessary to grant compensation to persons entitled to receive it in relation to assets that cannot be restituted in kind.

The initial share capital of “Fondul Proprietatea” is RON 4.24 bln.:– assets contributing towards the share capital of the fund are mainly represented

by stocks held in various national entities and companies.

Initially, Ministry of Finance was the unique shareholder of “Fondul Proprietatea”:

– the MoF decreased the stock it holds in the share capital of “Fondul Proprietatea” by the assignment of its shares in favor of the people to be compensated.

“Fondul Proprietatea” operates based on the general principle applicable to the organization and operation of a closed investment company:– portfolio management will be performed by an international organization well-

known in the active management field;

– selection process is on roll.

THANK YOU FOR YOUR ATTENTION!