How Law on Privatization defines privatization process in Serbia and what are the legal framework key points related to investing in companies in Privatization Agency's portfolio

1. P r i v a t i z a t i o n A g e n c y
CONCEPT OF PRIVATIZATION
In accordance with the Law on
Privatization – effective from
August 13, 2014

2. Law on Privatization
effective from August 13, 2014

3. I Principles
1. CREATING THE CONDITIONS FOR ECONOMIC DEVELOPMENT
2. REDUCING THE NEGATIVE FISCAL EFFECTS
3. ENSURING TRANSPARENCY
4. PREVENTION OF CORRUPTION
5. FORMATION OF THE SALES PRICE AT FAIR MARKET CONDITIONS
6. CREATING THE CONDITIONS FOR SOCIAL STABILITY

4. II Models
SALE
OF
CAPITAL
SALE
OF
ASSETS
TRANSFER OF
CAPITAL
FREE OF
CHARGE
STRATEGIC
PARTNERSHIP

5. III Methods
Sale of capital
and/or assets
• public
gathering of
bids with
public bidding
Shares can be
sold
• under the law
governing the
securities
market
• in accordance
with the law
governing the
takeover of
joint-stock
companies
Transfer free of
charge
• to employees
• to strategic
investor
Strategic
partnership
• public
gathering of
bids

6. IV Measures for preparation and
disburdening of liabilities*
* Only in cases of capital sale or strategic partnership through capital increase
Conditional debt write-off
Conversion
(debt – equity swap)

7. V Provisions governing contractual
obligations
Agreement on the Sale
of Capital (Article 37)
or the Asset Sale
Agreement (Article 52)
are the contracts of
adhesion which may
contain provisions on :
•contractual parties,
•subject of sale,
•contracted price and terms of payment,
•amount and time frame for buyer’s investments,
•obligation to continue the entity’s business
operations,
•limitation of capital/assets disposal by alienation
and pledge,
•prohibition of reduction of the number of
employees who have been employed for an
indefinite period of time,
•obligation of regular payment of salaries to
employees,
•collaterals for proper fulfillment of contractual
obligations
•other provisions.

8. V Provisions governing contractual
obligations
 Contractual obligations typically last two years and in exceptional
cases, due to importance of business preservation and at the proposal
of the relevant ministry with jurisdiction over the activities of the
Company, contractual obligations may be extended to three years.
 In case of capital sales agreement, on the date of certification the
Agency acquires the legal lien over the capital subject to sale, which is
registered at the competent registry and deleted 15 days after the
execution of the Buyer’s last contractual obligation.
 Assignment of the agreement requires prior consent of the Agency,
provided that receiver meets the legal requirements for the buyer of
the capital, and the assignor is jointly and severally liable with a
receiver for execution of obligations under the agreement.

9. V Provisions governing contractual
obligations
Own shares (Article 39) – capital increase of the privatization entity
arising from new share issue provided by third parties during the term of
contractual obligations, shall not be permitted; shares acquired by the
buyer from new issues arising from the capital increase of privatization
entity during the execution of contractual obligations shall be considered
the fully paid own shares of privatization entity; after the Agency verifies
the fulfillment of buyer’s contractual obligations, the privatization entity
that has acquired own shares shall transfer them free of charge to the
buyer from which the shares were obtained.

10. V Termination of the agreement
1) failure to pay
the agreed price in
accordance with
the sales
agreement
2) disposal of the
entity’s assets
contrary to the
provisions of the
agreement
3) disposal of the
entity’s capital
contrary to the
provisions of the
agreement
4) failure to submit
guarantees in
accordance with the
agreement
Conditions for Termination of the Capital Sales Agreement (Article 40) – the
agreement shall be deemed terminated due to contract default if, even within the
additionally approved deadlines, the buyer fails to remedy the following breaches of
contractual obligations:

11. V Termination of the agreement
Legal consequences of the termination of the capital sales agreement (Article
41) – in order to protect general public interest, the buyer shall lose the right :
 of refund of the amount paid on behalf of the agreed price,
 over the entire capital of the privatization entity that the buyer directly or
indirectly acquired under the obligations from the sales agreement, as well as
 any compensation or indemnity under the same, except shares acquired
through purchase on the organized securities market.
The entire capital including own shares acquired in the capital increase through
new stakes, shall be transferred to Privatization Agency. Funds generated from
the sale of own shares shall not be paid to the buyer of the capital with whom
the sales agreement has been terminated, and the buyer shall lose the right to
any remuneration or compensation in respect of assets and rights entered into
the privatization entity, which have increased the capital of the entity.

12. V Termination of the agreement
1) failure to pay
the agreed price
3) disposal of the
entity’s assets
contrary to the
provisions of the
agreement
2) failure to submit
guarantees
Asset Sale Agreement (Article 52) is deemed terminated due to non-
fulfillment if, even within the subsequently determined deadline, the
buyer fails to remedy the following violations of contractual obligations:

13. V Termination of the agreement
Legal consequences of the termination of the Asset Sale Agreement :
 The buyer is not entitled to the price refund, for the purpose of the
common interest protection
 The Agency protests the bank guarantee and transfers generated
funds to the budget account of the Republic of Serbia
 In case of termination due to property disposal, such property shall
remain in the ownership of the buyer or a newly established company

14. V Strategic Partnership Agreement
Article 68) – contains contractual obligations of strategic investor, terms, manner and
legal consequences of the termination of the agreement agreed by the parties
1. According to Decision on Strategic Partnership by establishing a new company,
rendered by the RS Government at proposal of the Ministry of Economy (Article 70), a new
company is founded through the agreement concluded by the Republic of Serbia and
strategic investor, in line with the company law. The Republic of Serbia shall acquire
ownership of the property through “giving in payment” (datio in solutum), pursuant to the
law regulating contracts and torts, on the basis of claims against the privatization entity,
with the value of the properly being 100% of estimated fair market value. The stake of
strategic investor may be in cash, property or rights. RS shall acquire property
proportionate to the share of state creditors’ claims in the total amount of claims against
the privatization entity when the capital of the privatization entity is negative. In case
there is a pledge on the property being the contribution in the new company, consent of
all secured creditors must be obtained whereas the property rights shall be deleted from
the registries, upon request of the RS, in line with the law. The Government shall,
pursuant to provisions of this Law, render a decision on further privatization procedure of
the property or capital which remained after foundation of a new company.

15. V Strategic Partnership Agreement
2. Strategic partnership through Capital Increase of existing privatization
entity (Article 73) is increase of share capital in the entity for which the
Government has rendered the decision on capital increase. Contribution of the
strategic investor may be in cash or in kind, under the agreement concluded by
and between the RS, privatization entity and strategic investor, according to the
law governing the status of companies. The Privatization Agency shall be obliged
to offer the strategic partner to purchase remaining socially owned capital not
later than three months prior to expiry of the deadline for privatization of
socially owned capital if the investor does not accept the offer, socially owned
capital shall be transferred to the Shareholders Fund.

16. VI Control of execution of contractual
obligations
The Agency shall control the execution of
contractual obligations on the basis of the
authorized auditor’s report submitted by the
buyer/strategic investor, as well as on the basis of a
court expert’s assessment for the investment
subject. The buyer /strategic investor and the
person authorized to represent the privatization
entity shall be responsible, under criminal and
material liability, for the accuracy and
completeness of the documentation and data.
In cases of capital and/or asset sale,
the Government shall more closely
prescribe the procedure of control
carried out by the Agency, whereas in
cases of strategic partnership, the
Agency shall deliver the report on
executed control to the Ministry of
Economy, which shall determine the
fulfillment of contractual obligations
and propose relevant measures to the
Government.
In cases of capital and/or asset sale, the
Buyer may be granted no more than three
consecutive subsequent deadlines for
compliance with one contractual obligation
if it has been verified that the buyer had
submitted evidence of taking steps to
enforce contractual obligations in the
previously provided period. Collaterals for
proper performance of contractual
obligations shall be activated in accordance
with the agreement. Legal transaction
concluded without the Agency’s consent,
contrary to the provisions of the sales
agreement, shall be null and voidе.

17. VII Measures for preparation and
disburdening of liabilities
The Government may render the decision on respective measures (Article
75) once the privatization entity has met at least one of the following
criteria:
1) strategic importance for the region;
2) size of property;
3) number of employees;
4) amount of income from registered predominant activity;
5) market potential.

18. VII Measures for preparation and
disburdening of liabilities
Conditional debt write-off (Article 76) - The Government may render a decision for the
state creditors of the privatization entity to write off the debt as of 31 December 2013
towards the privatization entity which operates entirely or with majority of socially
owned or public capital (Amendments to the Law on Privatization should entail the
capital transferred to the Agency upon the termination); Conditional debt write-off shall
be valid in case of capital sale, strategic partnership through capital increase or in case
a valid decision confirming the adoption of PPRP of the privatization entity.
Debt-equity-swap (conversion) - (Article 77) is feasible under the same conditions - on
the basis of the Government decision, the State creditors are obliged to convert their
claims into equity.

19. THANK YOU FOR YOUR
ATTENTION
Privatization Agency of the Republic of Serbia
No 23 Terazije Street, Belgrade
011/30 20 800, info@priv.rs
www.priv.rs