The privatization of Gedeon Richter Plc.

The privatization of Gedeon Richter Plc. has been conducted in three consecutive phases. The former state - owned enterprise was transformed into a company limited by shares in 1990. The company was duly registered by the Budapest Court of Registration in the same year. In 1991 the first attempt at the privatization of Richter in the framework of the "First Privatization Program" was unsuccessful.

The privatization program that was launched in September 1994 resulted in a gradual decrease in the government's equity stake in the company. The company offered stocks as well as GICs that actually represented shares in the company to international institutional investors. Furthermore, the State Holding Company Ltd./ÁPV Rt. sold shares to domestic investors. As a result of the initial public offering that coincided with a capital increase in the company the government's equity stake in the company decreased from 86.9 per cent of the total subscribed capital to 62.5 per cent. The proceeds from the capital increase amounting to US$ 52.4 million were utilized for the repayment of the outstanding debt of the company, to launch a development program as well as for the development of the marketing and the distribution network of the company. Registered ordinary shares in the company were floated on the Budapest Stock Exchange on November 9, 1994. 

In November 1995 the State Holding Company Ltd./ÁPV Rt. offered further shares in Gedeon Richter Ltd. to Hungarian and international investors, which precipitate in terms of a further decrease in the government's equity stake to 43.6 per cent of the registered capital of the company, while private investors increased their ownership interest to 48.5 per cent of the registered capital of the company. At that time Hungarian entities still accounted for the majority of shares in the company, since 56 per cent of the total number of shares were owned by the State Holding Company Ltd./ÁPV Rt., retail investors as well as the employees of Richter.

In the next round of the privatization process in May 1997 2.6 million shares were acquired by international and Hungarian institutional investors, including 1 million registered ordinary shares that were utilized for the purposes of a capital increase. Hungarian retail investors had an opportunity to acquire 200 thousand more shares. 

As a result of this public offering the equity stake of the State Holding Company Ltd./ÁPV Rt. and the state - National Pension Fund /Nyugdíjbiztosítási Önkormányzat decreased to 25 per cent + one share. Both entities pledged not to sell further Richter shares until December 31, 2000. The equity stake of foreign investors increased to 60.24 per cent.

The State Holding Company Ltd. (ÁPV Rt.) hereby discloses that, on 9 December 1999 and with a payment value date of 27 September 1999, it purchased from the National Pension Fund (Nyugdíjbiztosítási Főigazgatóság) a share package of the Chemical Works of Gedeon Richter Ltd. of total face value HUF 1,763,748 thousand and representing 9.5% of the registered capital, as a result of which the stake of State Holding Company (ÁPV Rt.) in the registered capital of Chemical Works of Gedeon Richter Ltd. has increased from 15.69% to 25.16%, while the participation of National Pension Fund in the Company has ceased. 

Since 1994, when Richter shares were introduced on the Budapest Stock Exchange, they have been considered a popular blue chip paper by many investors.

Phases in the privatization of Gedeon Richter Plc.

* adjusted with the equity stake of the state - National Pension Fund (Nyugdíjbiztosítási Önkormányzat) as of December 1999 

Transaction

2004 saw the international transaction involving the Hungarian state’s remaining 25%+1 stake in the Company. On 14 September 2004, bonds in the denomination of € 100,000 and exchangeable into 4,659,373 Gedeon Richter shares with a total value of € 639 million (HUF 159 billion) were offered to institutional investors.

The exchangeable bond is a new type of financial instrument, well-known in Europe but regarding the Central-Eastern European region the Richter transaction was a first. To sum up the method, the bonds can be traded for Richter shares at a set date and exchange rate, while the issuer remains the owner of the shares until this given date – allowing Hungarian privatisation agency ÁPV Rt. to exercise ownership rights until 2009. The conversion of the bonds at the maturity date is not automatic since it will remain the Hungarian government’s decision to redeem the bonds or hand them over to the investors. 

Exchangeable bonds were sold in private placements, specifically to investors specialising in equity-linked products. The fact that investors have faith in Richter’s future became apparent when, despite the five-year limitation, demand was for twice the amount of bonds on offer. Richter books closed with a exchange premium of 54%, a premium unprecedented in Europe since 1999.

The bonds were introduced to the Luxembourg Stock Exchange on 28 September 2004.

The fact that the Hungarian state remains a shareholder in the company for at least a further five years and, as a result, continues to exercise its ownership rights in full, ensures the continuity of Richter’s strategy.