Lion Capital: "The proposals of the Blue Capital shareholder risk leading to an excessive decapitalization of the company"

The resolutions proposed by the shareholder Blue Capital for the general and extraordinary meetings of Lion Capital on April 29, respectively that half of the profit be allocated as dividends and the realization of a program to buy back 50 million own shares, to be used to reduce of the social capital, risks leading to an excessive and unjustified decapitalization, exposing the company to situations of high vulnerability and increased liquidity risk, according to a report of the Board of Directors of Lion Capital, published on Monday on the website Bucharest Stock Exchange (BVB).

We reproduce, in full, the position of the Lion Capital management:

"Considering the completion of the agenda of the ordinary general meeting and the extraordinary general meeting convened for April 29 (30) 2024 with the points requested by the shareholder Blue Capital and the publication of the revised agenda of the two meetings, according to the current report of the Company from on April 12, 2024, the management of Lion Capital wishes to make the following clarifications, for the correct and complete information of investors.

The proposals of the shareholder Blue Capital included on the agenda of the general meetings of shareholders aim at the adoption of some resolutions that assume the exit of the Company's patrimony of significant sums of money, on the one hand in the form of dividends (208,627,566 lei for this purpose), and on the other hand in the form of the buyback of a large number of own shares, in order to significantly reduce the share capital by almost 10% (by buying back 50,000,000 own shares, which at the current average daily market price of approximately 2.95 lei/share, represents approximately 147,500,000 lei).

The management of Lion Capital draws attention to the fact that the resolutions proposed by the shareholder Blue Capital, both on the agenda of the ordinary general meeting and on the agenda of the extraordinary general meeting, risk leading to an excessive and unjustified decapitalization, exposing the Company to situations of high vulnerability and an increase in the risk of liquidity, in the context in which the perception of risk in the financial markets has intensified after the outbreak of recent armed conflicts (the one in Ukraine, but also those in the Middle East, including the one recently provoked by Iran), periodically noting volatilities in the stock markets, commodity markets, precious metals and energy markets.

On the internal level, the fragility of the economic environment, the electoral context and the risk of increased taxation in order to reduce internal macroeconomic imbalances, may cause periods of volatility in the local capital market.

Considering the current but also the (possible) future vulnerabilities within the financial system, as well as the increase in systemic risks to financial stability, in order to prevent the materialization of severe risks, the management of Lion Capital believes that it is necessary to pay increased attention to monitoring the evolution of risks to which the fund is exposed, to counteract possible vulnerabilities and to increase financial and operational resilience, promoting prudent conduct, and the application of preventive measures aimed at mitigating or managing specific risks, including by maintaining a higher level of capitalization, to be able to absorb more slightly potential shocks in the capital and/or banking markets.

Without entering into a polemic with the Blue Capital shareholder vis-à-vis his allegations brought in support of his own points proposed on the agenda of the two general meetings, we show that there are two possible approaches regarding the administration of an investment fund: (i) an approach focused primarily on returning capital to shareholders (e.g. through aggressive share buyback programs, distributing all profits as dividends, etc.), which over time amounts to a liquidation of the fund's assets and their transfer to shareholders and (ii) an approach focused mainly on the development and growth of the fund, including by reinvesting profits, thus ensuring the long-term sustainable profitability of the activity, in favor of increasing the value created for shareholders, both the value of the assets under management , as well as the value of the shares issued by the Company.

We believe it is sufficient to show that the prudent and balanced approach taken by the management of Lion Capital to date in its management activity, focused in particular on capitalization and development, has allowed a significant and constant increase in the quality and value of assets under management, Lion Capital currently reaching the highest value of assets under management among the investment funds listed on the Bucharest Stock Exchange (within the BET-FI index).

In conclusion, taking into account the above, Lion Capital's management continues to support the proposals of the Company's Board of Directors included on the agenda of the two general meetings of shareholders, proposals characterized by a balanced and prudent approach (non-distribution of dividends, redemption a small number of shares and maintaining a higher level of capitalization and liquidity) and advises investors to be cautious in exercising their voting rights when choosing between the proposals made by the Board of Directors of Lion Capital (high capitalization and development) and those formulated by the shareholder Blue Capital (decapitalization through capital returns)".