PROPOSALS THAT ARE GIVING THE ROMANIAN EXCHANGES COLD CHILLS Dinu Marian: "Why not list the SIFs on a regional market?"

Reporter: What is your view on the conflict at SIF Muntenia over the last 12 months? Do you think there have been violations of the rules set through the law/bylaws, at the organization of the General Shareholder Meeting of July 6th/7th 2012 and thereafter?

Dinu Marian: My feeling is that, arguably, there have been no slip-ups. I will disregard "the ordered disruption". Basically, the disagreement concerns the manner of the corporate governance. We see this kind of disagreement in many legal systems, including in mature economies, even in the "land of capitalism", the US. What can you do to make the will be reflected in the decisions of the general shareholder meeting? In the end, that is why it is called the general shareholder meeting, so that they can all be heard. In the best of cases, they are heard, but not listened to. Hence, the conflicts between the various shareholders, the separation comes from the voting power. In the US, they use the institution of the vote ("proxy vote"), which solves on principle the will of millions of millions of small shareholders. In Romania, the institution of the "proxy" is far from being a solution. And then, you get to decisions which have an arguable morality. For example, "appropriation" through a decision of shareholders which own the majority of the AGA, of the reserves set up through dividends not cahsed in by shareholders.

"Passive" - shareholders, those who either don't know what's happening, in spite of the publication prior to the General Shareholder Meeting of the draft of the decision or those who don't bother to vote - are ignored. The fact that we presume their lack of interest shows a lack of morality on behalf of the SIF. Regardless of the fact that a flawed privatization of the 90s has made such an anomaly possible. I repeat it is a matter of morality of capitalism, unless the two concepts (morality and capitalism) are at odds. It remains to be seen whether the dispute will turn into a legal matter.

In the context of the question, the situation is made more complicated by the imperfections of the law. I am not a lawyer, but I do take into consideration the fact that the law no. 31 (ed. note: which concerns companies) does not mention how the secretariat of the General Shareholder Meetings should be elected.

For example, in some companies, such as the Proprietatea Fund, the first item on the agenda is to elect the secretaries of the meeting - as a shareholder, you get the number of votes equal to the number of shares you have. In other companies, the secretariat of the meeting is elected by counting the votes of the participants, which are expressed through the raising of the hand. There are arguments to be made for both methods.

A group of shareholders present at the General Shareholder Meeting of SIF Muntenia held on July 6th/7th 2012 feel that it is imperative that the secretaries of the Meeting be elected proportionally to the number of shares. Another opinion was that at the moment of the physical meeting in the room, prior to the official opening of the meeting, it is not known how many votes each of the present shareholders has, until it gets the data from the secretariat of the meeting, which gets it from the technical secretariat.

In my opinion, it is legally unclear what the correct method is to elect the secretariat of the meeting. I do not know the legal precedents of court rulings. I am not taking any sides here. The mistake that was made was that the methods used were different from one general shareholder meeting to the next.

Reporter: The Board of the Representatives of Shareholders should represent all the shareholders.

Dinu Marian: I agree. I have already briefly touched on this topic. The problem is how do you actually represent all of them, when it is clear, and absolutely legal, that those who have the highest number of votes impose their will in a general shareholder meeting. But when you have five million shareholders, the fact that their overwhelming majority remains silent, and you don't hear them in the general shareholder meeting, does not necessarily mean lack of interest on their part. That doesn't necessarily mean to automatically disregard those who invest in stocks, those who have accepted the risk and who want the returns that come with that risk.

I think that when you are in a position which is part of the governing structure, you need to stand by your decision and to accept the consequences. This is the reason why I concluded that perhaps I am not capable of leading the General Shareholder Meeting, and, speaking of that moment, I left the meeting which was held on July 7th. I took that step without making any comments. The legal events in the meetings which followed showed that my decision to leave the meeting left marks. I am referring to the fact that another group of shareholders disputed the decisions of the General Shareholder Meeting in court. We are still in the situation where the decisions of the General Shareholder Meeting which were made on July 6th and 7th are suspended until the court will issue a ruling on the validity of the dismissal and the election of the Board of Representatives of Shareholders.

I stand by my opinion that the Romanian National Securities Commission (CNVM) failed to live up to what is expected of it. Its role as a supervisor was flawed - it is not normal to issue ordinances at 1:00 AM or 2:00 AM (and this happened more than once). Making decisions at such an ungodly hour however (that's to use a decent word) does not bode well for the market, operators and investors. To say nothing of the credibility of the regulations. This is what injects uncertainty into the system. But even in terms of its regulatory capability, the CNVM has had an unsatisfactory performance - it was very late in the game that the Commission has taken responsibility for each case where the shareholders were acting in concert. You will note that, out of respect for the Commission, I will not state any opinions on the validity of its decisions.

Reporter: The group of shareholders which rallied around businessman Gheorghe Iaciu had several criticisms about the manager of SIF Muntenia.

Dinu Marian: I do not share those accusations. Regardless of what I believe, it is the law that represents the benchmark. The demands of the groups that you speak about??! Many of the mare legitimate. Besides, if I have understood correctly what he was saying in the interview he recently gave you, he (ed. note: Gheorghe Iaciu) had positive things to say about what the manager did in the last year.

In October, I had access to the minutes for the August-September period, which reflected the deliberations and the decisions of the Board of Representatives of Shareholders elected in July 2012. By corroborating them with the public market reports of the manager, with the materials in the press, it is clear that the relationship between the manager and that Board of the Representatives of Shareholders did not work.

Thus, we had two Boards of Representatives of Shareholders. The one elected in April 2009, which I am still leading and will do so until the General Shareholder Meeting of April 25th/26th 2013, when our term expires, and the one elected in July 2012. The relationship of the Board of Representatives elected in April 2009, was criticized by a group of shareholders, which claimed that the manager did not do its duty, and the manager has basically exceeded its competences. I will disregard the accusations which were made outside the meeting of the General Shareholder Meeting and which were not proven.

On the other hand, the Board of the Representatives of Shareholders clearly did not cooperate with the manager. The relationship was full of acrimonies and criticisms. I am referring here to the request of the Board of representatives of Shareholders for the manager to be held liable, the use of lawsuits, the requests to summon the General Shareholder Meeting for dismissing the manager etc.

The question arises to what extent this "thorny" collaboration between the Investment Management Society (SAI) and the Board of Representatives of Shareholders (CRA) has influenced the actual management of the SIF by the SAI. I have meditated on this subject and I think that the effect, whether positive or negative, was limited. Why limited? Due to the institutional framework of corporate governance. Thus, according to the bylaws of SIF Muntenia, the manager - SAI is the "director" in the "band" of the governance of the SIF. Under no circumstances is it the CRA.

The Board of Representatives of the Shareholders, has its role, defined in the bylaws, to oversee and to watch, as well as an operating role - concluding the contract with the auditor. That is the reason, the BRS elected in April 2009, which was dismissed in July 2012 and which returned in October, took the decision to sign the contract with the auditor. We had a legal ground - the decision of the General Shareholder Meeting of April 2012 to extend the contract with the auditor by three years. There was the risk of any of the millions of shareholders suing the BRS at any time, for allowing the stock of the company to continue trading even though it no longer had an auditor. I, as well as the other members of the Board of Representatives of Shareholders, did not take this risk.

In the Board of Representatives of October 2012, we all gave some thought to how we should act when it comes to the decisions made by the Board of Representatives of Shareholders elected in July 2012. There were several opinions on that matter. In the end, we got "enlightened" by the courts: if the court suspended the Board of Representatives of Shareholders elected in July 2012, until it issued its ruling, what grounds would we have to deny or confirm the decisions of the BRS? We have concluded that in order to continue the activity, it was best to fully suspend the decisions of the Board of Representatives of Shareholders elected in July 2012. Once the court issues a ruling, it will become clearer how we should proceed. Meanwhile however, on April 25th/26th, the term of the Board of Representatives that I belong to (the one elected in April 2009) will expire. The new Board of Representatives of Shareholders which will be elected in April 26th 2013 will review the situation which has been created. They will make the decisions which they will see fit.

I want to emphasize again: beyond the obligation of signing the audit contract, the institutional and informal dialogue with the manager, to signal, postfactum, the consequences of some administrative acts, the Board of Representatives of Shareholders plays no decision-making part in the management of the SIF. That is why I think that the Board of Representatives of Shareholders is an obsolete body.

The law concerning the stock market itself does not validate the existence of a Board of Representatives of Shareholders. This Board is a sui-generis organism. It has appeared in circumstances which were specific for SIF Muntenia, after the passing of the law 297 of the stock market. Since it has no means of action to make decisions, it is natural for the Board of Representatives of Shareholders to be unable to justify its existence. That is why it is normal, logical and productive to have one of the forms of management of the companies which are stipulated through the law, whatever they may be.

The other four SIFs have boards of directors. Perhaps this is the best formula. From that point of view I dare say that the Board of the Representatives of Shareholders will disappear. It is sentenced to disappear, it is logical for that to happen and I don't think anyone will miss it.

At a given time, one group of shareholders said: "You did not represent us adequately, we will do the representing from now on". And look at that, they did. Did they improve anything? I tend to believe they didn't, because the major disagreements between the Board of the Representatives of Shareholders (CRA) and the Investment Management Company (SAI) could have generated major disruptions in operations. The fact that we are now "discovering" that, as a result of the "militantism" of the Board of Representatives of Shareholders, the results for 2012 are good, is another topic. The corollary of what I said earlier is the extraordinary importance of the general shareholder meeting in the act of managing the SIF.

Reporter: How could the dropping of the Board of the Representatives of Shareholders take place?

Dinu Marian: Dropping the Board of Representatives of Shareholders is a matter of time. This will happen anyway. The developments that we are seeing, of the concentration of holdings, lead precisely to this development. Or, as an alternative, the law can be changed. I hear that there is a chance of a legislative initiative, which would either allow each investment fund to choose its manager, or which would decide that all the SIFs would be managed by the Boards of Directors.

The shareholders will impose their will, even though it may be a slow or tedious process. If the holdings are concentrated to a sufficient extent, the bylaws will be updated, which will make the Board of the Representatives become history at SIF Muntenia. In my opinion, it is natural not to have a holding limit. The threshold (ed. note: the holding limit imposed through the law at the SIFs) has no capitalist justification (in the positive sense of the term). The holding limit has been set as a means of protecting the millions of microscopic shareholders, that appeared following the mass privatization (in fact it has already undergone five changes - a five times increase through a legislative formula).

I have approached the issue above, but I will take the chance of saying more about it. The "appropriation" of the reserves of the company was a redistribution of the dividends left uncollected by millions other shareholders, who are appropriating those dividends. As an example (I will admit it is a bit extreme), it is not normal for a very old lady, in some small village in Romania, who perhaps doesn't even know she has shares in SIF Muntenia, not to receive dividends, only because she may not know she is entitled to them, maybe she doesn't even know she owns shares, perhaps she doesn't even read the papers (of which one which is nationally distributed) not the Official Gazette, perhaps she doesn't even have a TV. I've already stated my opinion on the morality of this action. It will remain to be seen what the courts will say.

In opposition to this, the well-known phrase < the ignorance of the law does not exempt you from being guilty >. I've been told that if these microscopic holders did not decide, it is their problem, perhaps they didn't need the money etc. Given the circumstances, where we are talking about a stake, and the right of ownership is constitutional, etc., the courts should issue a ruling at a certain moment. The mechanism of the protection through the holding limit doesn't seem to be working, however.

Reporter: SAI Muntenia and SIF Banat Crişana have announced an agreement to take over the manager of SIF Muntenia. What changes do you think such a deal would bring?

Dinu Marian: I definitely praise this initiative. I found out from the newspapers and among other things this once again shows that the Board of the Representatives of Shareholders is obsolete.

Why do I welcome this possibility? I see it as a way of fixing the corporate management problem; It will eventually come to the point where we will gradually begin to exploit the latent synergy of the investment strength of the SIFs. If we can foolishly rejoice the moment some foreign company comes and buys another little piece of our economy/country for two million Euros, why should I not be happy if the SIFs, even at their current capitalization (which does not reflect reality at all), say that they want to invest 200-300 million in the economy. It is perfectly likely that it will happen. In my mind, the SIFs have a combined investment strength which is bigger than that of the government, (obviously I am not including here the investments of the government made using resources raised through borrowing). I think the time is coming when the SIFs will play an important part in the economy.

One SIF in itself is a strength, why should I not praise the combined force of two or more SIFs? In this context, the interest of a SIF to participate in the privatization of the postal office is positive. I hope that the regulators will drop the restrictions placed on the areas the SIFs are allowed to invest in. I am also hoping that the SIFs will very soon come to achieve their main line of business, which according to the CAEN is the mobilization of financial resources of individuals and companies. There have been so many years since the creation of the SIFs and we still do not have the first case of a successful capitalization of a SIF using this avenue.

Reporter: Do you see any impediment, which would cause the CNVM or the Competition Council not to approve the transaction?

Dinu Marian: I have no expertise in this sector. I've heard some people say that there should be no monopoly bigger than 40% of the market. I don't think that this is the correct action in that case. One shouldn't just calculate the market share for the five SIFs. You need to consider all the funds which exist - investment funds, private pension funds etc. Besides, the five SIFs don't compete with each other anyway, so what is there to monopolize?

I don't know what the CNVM will do. I don't think I am seriously wrong when I am saying that the CNVM has another urgent and acute problem, namely adapting to the new institutional environment and finding its place in the Financial Supervision Authority.

Reporter: Do you think that SAI Muntenia Invest should be eliminated/restructured?

Dinu Marian: There is always something to perfect. If you look at the investment funds abroad, they have a lifecycle which is usually determined in advance. They live, they grow, they complete their mission and then they close. The manager "fades away" naturally or sets up and manages another fund. This is a decision of the shareholders of the management company. Moreover, the shareholders of the SIF themselves can decide the fate of the management company.

My opinion is that SAI Muntenia Invest has accumulated solid expertise, while traveling a bumpy road. It has started off with several hundred companies, operating in miscellaneous lines of business, with varying degrees of profitability, with different capitalizations, with managers of unequal talent, some of them listed on the stock market, some of them not listed, and so on. Generally, investments are focused on specific areas, and that is not accidental. In this case, we have an amorphous, not specialized investment fund. It is not normal. Some progress has been made in the restructuring of the portfolio, even though very slowly. In my opinion, the broad stroke restructuring should have been completed some time ago. Personally I would have been more impulsive in getting rid of many companies or restructuring them. I am aware however, than when you are afraid of legal repercussions, you are more cautious, you weigh decisions longer. I wouldn't drop what the Asset Management Company has accumulated so far - it is an asset which is hard to quantify in terms of money, but no less important.

Reporter: What do you expect for the future of SIF Muntenia and the other SIFs?

Dinu Marian: I have discussed this topic earlier. What else could I add? If the SIFs realize that they need to adapt, that they need to become authentic investment funds, I think that their future will be OK. I see no major impediments on that path. One thorny issue, which has been unofficially been discussed for a while now, concerns the market for the trading of the SIFs. I regretfully say, and I am not the only one that the Romanian exchanges do not provide the adequate environment for that. They've had plenty of time to adapt, to develop. Or the way things are now, with the current depth of the Romanian stock market - pitiful!, with the operating costs, with the regulatory costs, why not resort to a listing on a regional market? I think that the shareholders would be the first to benefit - the discount that the SIFs are trading at would significantly shrink, their governance would be significantly more transparent, their capitalization would be easier (their capitalization will become stringent in just a few years) etc. It is a matter worth examining.