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The General Shareholder Meeting of SIF Banat-Crişana and a web of investment vehicles

Andrei Iacomi (Translated by Cosmin Ghidoveanu)
English Section /

The General Shareholder Meeting of SIF Banat-Crişana and a web of investment vehicles

SIF Banat-Crişana (SIF1), together with a series of investment funds which it finances to different degrees together with SIF Muntenia (SIF4), held at the end of 2019 approximately 26% of the equity of SIF4, whereas SIF Muntenia together with such financial vehicles held almost 18.2% of the equity of SIF Banat-Crişana.

For instance, FIA Romania Strategy Fund AA/Vaduz, managed by Accuro Fund Solutions AG, Liechtenstein (in which SIF1 holds 50.88% and SIF4 - 49.12%), held 4.11% of the capital of SIF Banat- Crişana and 5% of the capital of SIF Muntenia.

Furthermore, on April 14th, 2020, the fund, registered in Vaduz, held 3.62% of the equity of SIF Oltenia.

Opus-Chartered Issuances SA/AA, issuer registered in Luxembourg, as an unregulated securitization company, from which SIF Muntenia acquired in 2016 a number of 1140 bonds (which track the evolution of a basket of stocks made up of SIF Moldova - 9.17%, and SIF Oltenia - 90.83%), and in 2017 a number of 501 bonds (which track the evolution of a basket of stocks consisting of SIF Banat-Crişana - 52% and SIF Moldova - 48%) held 4.99% of SIF Banat-Crişana at the end of last year, as well as 5.05% of SIF Moldova, and on April 14th, the investment vehicle held 4.21% of SIF Oltenia.

FII Active Plus (97.22% - holdings in SIF 1&4), an investment fund managed by SAI Swiss Capital Asset Management held 2.81% of SIF Banat- Crişana and 4.73% of SIF Muntenia.

It also held 3.56% of SIF Moldova, and on April 14th, it held 4.83% of SIF Oltenia.

There are many more examples like this.

It follows that SIF Banat-Crişana and SIF Muntenia (which are in a control relationship, because SIF1 holds 99.98% of SAI Muntenia, which is the manager of SIF4), as well as other SIFs such as SIF Moldova, are buying ownership deeds in investment funds which are buying, to different degrees, shares in SIF1, SIF4 as well as SIF2 and SIF5.

Aside from the issue of acting in concert, of which the Financial Oversight Authority (ASF) said that it has found no evidence, in February, SIF Oltenia, through its executive Tudor Ciurezu, raised the issue of the legality of such holdings.

The general shareholder meeting of SIF Banat-Crişana of March 10th (when the vote for the elimination of the holding limit in SIF1 was held), had on the agenda the cancellation of a number of shares representing 14.07% of the company, and the suspension of the voting right for these shares, until the share capital is reduced, items which were placed on the agenda of the general shareholder meeting at the request of SIF Oltenia.

At the time, the SIF of Craiova discussed the SIF1 shares owned by SIF Muntenia, OPUS - Chartered Issuances and FIA Romanian Strategy, which it claimed did not abide by the legislation concerning the acquisition by a company of its own shares, and backed that claim using a number of articles of the Law no. 31/1990, a decision of the Competition Council of June 2013 and a decision of the ASF of November 2019 (See the arguments invoked by SIF5 in the Notes section).

On the other hand, the management of SIF Banat-Crişana said that the request of SIF5 actually represents an abusive exercising of the shareholders' rights, which, if validated, would restrict or suppress the rights of other shareholders, because it concerns the cancellation of shares held by other shareholders of SIF1 (not by the company) and the suspension of the pertaining voting rights, without a legal basis.

Essentially, SIF Oltenia was saying that the shares held by those funds, represent, in actuality, shares held indirectly by SIF Banat-Crişana itself, and which, according to the legislation in effect, would have to be canceled, but SIF1 said that the shares are held on its own behalf and are the exclusive property of SIF Muntenia and of the two investment vehicles.

Back then, the requests of SIF5 failed to gain traction with the shareholders, as almost half of the votes cast were abstentions.

Today is the general and extraordinary shareholder meeting of the shareholders of SIF Banat-Crişana, and the webbing of investment vehicles spun around SIF1 and SIF4 is mind numbing, one almost can't tell who owns what.

But, under the cover of such a tangled web of funds, which we don't know what it was like three or four years ago, SIF Banat-Crişana has stopped paying out dividends since 2015, as per the shareholders' decision, whereas it paid out dividends every year between 2001 and 2012, according to data provided by the BSE.

Besides, the lack of dividends is one of the main causes for the retail investors' unhappiness with SIF1, and one of the reasons why many of them are steering clear from its shares.

For today's general shareholder meetings, the management of SIF-Banat Crişana has proposed two options for the distribution of the last year's net profit.

One option would be the allocation to shareholders of the amount of 25.73 million lei, respectively a dividend of 0.05 lei, the equivalent of a gross yield of 2.14% over the last price of SIF1 in the market, whereas the balance of 133.76 million lei would be directed towards "Other reserves".

The other option involves the allocation of the entire profit towards "Other reserves", for the purposes of buying back and canceling 15 million shares, or about 2.9% of SIF Banat-Crişana, in order to reduce the share capital.

Also being proposed is the allocation of 0.88 million shares of SIF1, bought back based on a decision made in April 2018, by the shareholders and administrators of the company, as part of the "Stock Option Plan", approved in April 2019, as well as the beginning of another stock buyback program, again for 0.88 million shares of SIF1, for the purposes of distributing them to the company's managers, allocation which will be done based on specific performance criteria which will be set by the Board of SIF Banat-Crişana.

Another item on the agenda includes the approval of the reduction of the share capital of the SIF by canceling 2.038 million of its own shares which were acquired through a stock buyback program.

For today's general shareholder meetings, the ASF has decreed that the management of SIF1 limit the votes of Aris Capital, Torch Invest and Smart Capital Investment, which are acting in concert and together hold 12.22777% of the company's capital, to 5%.

Also, on April 13th, the reference date, the group gathered around SIF Oltenia held slightly over 5% of the equity of SIF Banat-Crişana.

Note:

On February 6th, the group of shareholders of SIF Banat-Crişana backing SIF Oltenia requested the reduction of the share capital of SIF1, through the cancellation of a number of 72.84 million shares, the equivalent of approximately 14.07% of the company, as well as the suspension of the voting rights for said shares, owned by SIF Muntenia, OPUS - Chartered Issuances SA/AA Luxembourg and FIA Romanian Strategy Fund AA/Vaduz, until the share capital reduction gets recorded.

Back then, SIF5 invoked the provisions of art. (1) of Law no. 31/1990 concerning companies, which states that a company is allowed to buy back its own shares, either directly or indirectly, with the shareholders' approval, which have to set certain conditions in that regard, such as the maximum number of shares which are going to be bought back, their face value, including that of those which are already part of its portfolio, which may not exceed 10% of the subscribed share capital, or that the payment of the shares may only be made out of the profit eligible for distribution or out of the company's reserves, recorded in the latest approved financial statement.

SIF Oltenia has also invoked art. (1) of that same law which states that, if a company subscribes, acquires or owns shares in a joint stock company in which the latter holds the majority of the voting rights directly or indirectly, or a stake which allows said joint stock company to significantly influence the decisions of the former, the aforementioned operations are considered to have been done by the joint stock company itself.

SIF Banat-Crişana owns 99.98% of SAI Muntenia Invest, the manager of SIF Muntenia, which means that it can significantly influence the decisions of SIF4, SIF Oltenia was saying back then, and it also mentioned that SIF Muntenia holds 4.97% of SIF Banat-Crişana.

SIF1 and SIF4 hold 100% of FIA Romanian Strategy Fund, which holds 4.11% of SIF Banat-Crişana.

The bonds issued by OPUS - Chartered Issuances in 2017, acquired by SIF Muntenia, track the evolution of the price of a basket of stocks made up of SIF Banat-Crişana (52%) and SIF Moldova (48%).

In that context, the Craiova-based SIF was saying that, since there had been no decision by the shareholders of SIF1 authorizing SAI Muntenia Invest to acquire shares in SIF Banat-Crişana and that, based on the reports by the manager of SIF4 there was no evidence that the acquisition of SIF1 shares was made using the extralegal reserves or the distributable profit, the legal situation does not comply with the legislation concerning the acquisition by a company of its own shares.

That means that under such circumstances,the provisions of art. 104 Paragraph (1) of the Law no. 31/1990 become applicable, which require the sale of the acquired shares within one year from their acquisition, SIF Oltenia was saying at the time.

Moreover, since according to existing information, more than one year had elapsed from the acquisition of SIF1 shares by the shareholders, the provisions of 104 paragraph (3) of the Law no 31/1990R become applicable, which stipulate that the issuing company is required to cancel shares not sold within one year of their acquisition, through their Board of Directors, the notification by SIF5 further said.

Also, because SIF Muntenia, OPUS - Chartered Issuances SA/AA and FIA Romanian Strategy Fund AA/Vaduz had not sold their stakes in SIF1 within the mentioned delay, every share that the aforementioned three shareholders held at that time did not have voting rights, SIF Oltenia was further saying.

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