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21 December 2011

Statement of the President of the Management Board of NLB d.d. Božo Jašovič, MSc, concerning the reasons for his irrevocable resignation

I wish to explain the circumstances and reasons leading to my decision to irrevocably resign from the function of the President of the Management Board of the NLB, of which I informed the Bank's Supervisory Board yesterday, on 20 December 2011.

On several occasions, expectations have been expressed for the Management Board of NLB d.d. to withdraw from the intention to sell the Mercator shares. Such expectations in the final phase of selling the Mercator shares came as a surprise, since this decision has been known for some time and has been clearly supported by the Bank's Supervisory Board as well as the owners.

Let me explain in some more detail: the NLB obtained the shares of the company Mercator in the collection procedure, as the underlying debtor was unable to repay a loan secured by the abovementioned shares. The NLB did not choose to purchase these shares with the aim of portfolio management, but was forced to do so because of the debtor's insolvency. Therefore, these shares had been available for sale from the moment of their confiscation.
With the new strategy of the Bank's operations, these and other confiscated shares have again been included in the portfolio available for sale in order to provide the resources for the financing of the Bank and, last but not least, to release the capital in the situation of restricted capital which the Bank is constantly facing. The public was also informed of such policy, which was adopted by the Bank's Supervisory Board and Management Board and expressly approved by the owners, emphasising that such investments had no place in a bank's balance, since they did not guarantee a foreseeable cash flow and exposed the bank to market risks, which resulted in tenths of millions of loss in the past two years. Another quite significant reason for sale was the procedure initiated by the ATVP which withdrew the NLB's voting rights arising from the above-mentioned shares on the assumption of concerted action. We provided detailed reasons for acquiring these shares to the regulator and informed it of our intention to sell them as soon as possible and explained that we had no intention whatsoever to control the company. From the point of view of alleged violation of the takeover legislation, reproached by the regulator of the capital market, the sale of shares was considered the abolishment of the key reason for its actions, while in the opposite case, it could order the Bank to offer all Mercator shares for sale.

In view of the above, the Supervisory Board of NLB d.d. monitored the implementation of activities related to the sale of confiscated securities in addition to all other measures aimed at implementing the strategy. The failure to achieve the required amount of Tier I capital in line with the expectations of the Bank of Slovenia resulted in the latter demanding reports on activities in the field of disinvestments, including the sale of confiscated securities. All of this gave rise to several attempts to sell the Mercator shares not only by the NLB but also by the other holders. The main reasons why these sales attempts failed were the non-transparency, partiality and insufficient competitiveness in the procedures. The pivoting point in the efforts to sell the shares was the decision of the Management Board of Mercator, which issued the initiative to the banks holding the company's shares to carry out a transparent and competitive international procedure aimed at selling the shares. This initiative was well accepted also by most of the shareholders who established a sales consortium to this end, in order to carry out the procedure in a professional and correct manner, assisted by international legal and financial advisors. As soon as the sales initiative was issued by the Management Board of Mercator, it was known that Agrokor was aspiring to acquire the Mercator shares, as it appeared in the role of potential buyer of shares already in two previous partial sales procedures. It was therefore quite logical to expect that this company, which is the closest competitor to Mercator, would act as one of the bidders for purchasing the shares through the international procedure.

The investment banks ING, hired by the consortium, and Societe Generale, hired by Mercator, were included in the procedure of attracting the investors interested in purchasing the majority package of Mercator shares. In the said international procedure, several non-binding indicative bids have been obtained, submitted by financial investors (private equity funds) and the company Agrokor as the only strategic investor. The offers between the latter and the financial investors differed significantly both in terms of price and other offered conditions for purchasing shares. The consortium of sellers thus decided to continue negotiations for the purchase of the Mercator shares with the company Agrokor.

Following this decision, the pressures on the sellers to stop selling the shares were increased gradually. The most surprising were the statements of some ministers publicly opposing the sale even though the Government of the Republic of Slovenia as the key owner expressly adopted the Strategy of the NLB Group and thus confirmed also its activities in the area of disinvestments and sales of confiscated shares. Since the wide-scale impact on the food-processing and manufacturing industry were used most often as an argument against the sale of Mercator shares, banks and other owners pointed out, in several meetings, that the sale was necessary and asked the representatives of the Government to organise a purchase by para-state funds or the state directly, if Mercator was considered a company of national strategic interest. This offer is still standing, provided that all Mercator's shareholders are offered the same conditions as those offered by Agrokor. In the meetings with the representatives of the Government, the protection of domestic suppliers was also pointed out, which can be provided by the Competition Protection Office in the scope of its decisions, when assessing the appropriateness of the purchase of shares by potential investor in terms of the rules on competition.

The Management Board of NLB d.d. actively participated in the transparent and professionally structured procedure of selling the Mercator shares, believing that it was pursuing the task it had been entrusted with, namely the implementation of measures foreseen in the Strategy of the NLB Group, which was approved by both key owners and which the company itself proposed. Before the sale, all participating sellers were aware that, in view of several previous attempts, this sales procedure must be carried out with the assistance of renowned international advisors and with firm commitment of all participants, which could also be subject to financial sanctions. All this time, the NLB was aware that foreign creditors and rating agencies were closely monitoring our activities, defined in the strategy, which further committed us to achieve the set goals.

The straightforward opposition of one of the key owners raised the question of the legitimacy of my work as President of the Management Board. The NLB Strategy foresees the adoption of several measures which, on the one hand, mean the updating of internal processes and the focus on comprehensive management of risks, sacrifices by employees, increased level of the culture of responsibility and selective restrictions in operations and on the other hand lead to the consolidation of the Bank and the Group. The implementation of these measures is all the more demanding in the circumstances in which the Slovene economy has found itself, since the share of bad loans in the Bank's balances is increasing at a pace not yet seen and far beyond the normal situation. In view of this, the above-mentioned measures, given as examples only, can only be carried out with full support of the owners. Thus, the Bank could implement specific activities to confirm declaratory orientations from the NLB Group Strategy, which could compete with other commercial banks. As I do not have these legitimate powers as President of the Management Board of the NLB, I informed the Supervisory Board of my irrevocable resignation from the position of President of the Management Board.


Božo Jašovič, MSc