CEZ A.S.

M&A Activity • Jul 27, 2021

CEZ Group Completes Sale of Bulgarian Assets for EUR 335 Million

The sale of Bulgarian assets between CEZ Group and Eurohold was settledtoday, with the latter paying EUR 335 million to CEZ for seven Bulgariancompanies. The sale agreement was signed in June 2019 and had to beapproved by the Bulgarian Competition Authority and the Bulgarian Energyand Water Regulatory Commission. The sale is in line with CEZ Group'sstrategy, which envisages exiting selected markets and segments abroad.The international investment arbitration continues.CEZ Group iswithdrawing from the Bulgarian market after 17 years of operation. Thedivestment process started in 2017 with the sale of the decommissionedVarna coal-fired power plant and has now been completed with the sale ofthe distribution and sales companies in the country. CEZ Group's totalincome from the sale of its Bulgarian assets exceeded CZK 10 billion.Overall, CEZ Group leaves Bulgaria with a positive cash balance of overCZK 1 billion.

The now completed sale includes seven Bulgarian CEZ Group companies: CEZBulgaria, CEZ Elektro Bulgaria, CEZ Razpredelenie Bulgaria, CEZ TradeBulgaria, CEZ ICT Bulgaria, Free Energy Project Oreshets and Bara Group.On 27 7 2021, Eurohold paid EUR 335 million for them. The transactionwas approved by the Bulgarian Competition Protection Commission (KZK)last autumn and subsequently by the Bulgarian Energy and WaterRegulatory Commission (KEVR) this year in January. Following thesettlement of the transaction, CEZ Group remains active in Bulgaria inthe energy services business (CEZ ESCO Bulgaria) and in the tradingbusiness (through ČEZ, a. s.).

"The divestment process was challenging but ultimately successful.Compared to the earlier exits of other foreign energy investors fromBulgaria, we managed the divestment with honor. CEZ Group leavesBulgaria with a positive cash balance. The settlement of the sale has noimpact on the international investment arbitration against the Bulgarianstate, which is independently pending. Therefore, the arbitration claimrepresents additional potential proceeds for CEZ and its shareholders",said Tomáš Pleskač, Member of the Board of Directors and Director of theNew Energy Division.

The international investment arbitration, which CEZ has been conductingagainst the Bulgarian state since 2016, advanced to the next stage inMarch this year, when the arbitration tribunal deciding the disputeconfirmed the legitimacy of the international arbitration within therelevant jurisdiction, i.e., the jurisdiction to deal with the dispute,and the arbitration proceeded to the merits phase. In early July, CEZsubsequently filed a statement of case, which was registered with theInternational Centre for Settlement of Investment Disputes (ICSID) inWashington.The arbitration claim is based on the Bulgarianstate's failure to comply with its obligations under the privatizationagreement and its commitments when it joined the European Union in 2007.The arbitration claim covers all areas of CEZ Group's operations inBulgaria, i.e., the generation, distribution and sale of electricity.

CEZ entered the Bulgarian market in 2004 with the purchase of two-thirdstakes in three power distribution companies. In 2007, distribution andelectricity supply were separated ("unbundling") and two new companieswere created from the original three distribution companies - CEZRazpredelenie Bulgaria AD for distribution and CEZ Elektro Bulgaria ADfor supply to end customers. CEZ owned 67% of the shares in bothcompanies, while the rest of the shares, which are publicly traded onthe Sofia Stock Exchange, are held by minority shareholders. Gradually,other companies were established in Bulgaria. The distribution company,CEZ Razpredelenie, supplies electricity to about 2,2 million customers.In 2020, CEZ Elektro Bulgaria and CEZ Trade Bulgaria supplied 10.4 TWhof electricity to end customers.

The buyer, Eurohold Bulgaria AD, is Bulgaria's largest publicly tradedcompany and its shares are traded on the Sofia and Warsaw stockexchanges. Eurohold is headquartered in Sofia and is a major player inthe Central and South-Eastern Europe region. Eurohold's subsidiaries areactive in insurance, leasing, car sales, asset management and investmentservices in 12 European countries. Eurohold owns the Euroins InsuranceGroup (EIG), which operates in European markets and has subsidiaries inBulgaria, Romania, North Macedonia, Ukraine, Georgia and Belarus.