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« EIB GROUP SUPPORTING THE REGIONAL SME FINANCING OPERATIONS » 4 th Theme Seminar, Financial Engineering Friday 27 October 2006 SAULI NIINISTÖ Vice President. EIB GLOBAL LOANS EIF VENTURE CAPITAL GUARANTEES & SECURITISATION JEREMIE. 2. SMEs IN EUROPE. - PowerPoint PPT Presentation
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« EIB GROUP SUPPORTING THE REGIONAL SME FINANCING OPERATIONS »
4th Theme Seminar, Financial Engineering
Friday 27 October 2006
SAULI NIINISTÖVice President
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EIB
GLOBAL LOANS
EIF
VENTURE CAPITAL
GUARANTEES & SECURITISATION
JEREMIE
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1%1%7%
91%
SMEs IN EUROPE
23 million SMEs account for 75% of jobs
99% of businesses in Europe are SMEs
91% of all SMEs are micro-enterprises (with staff of less than 10)
EU puts issues of growth, employment, innovation and competitiveness high on agenda (Lisbon Summit amongst others)
Support to SMEs: one of the top 5 EIB Group priorities
Europe’s enterprises are composed of
Medium-sized firms, 50 to 250 employees
Large enterprises
Small firms 10 to 49 employees
Micro-business 1 to 9 employees
KEY
Source: Eurostat, Commission Communication on Modern SME policy for Growth and Employment (2005)
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EIB - European Union’s financing institution: Created by the Treaty of Rome in 1958, to provide
long-term finance for projects promoting European integration
Subscribed capital EUR 163.7 bn
EIB shareholders: 25 Member States of the European Union
Lending in 2005: EUR 47bn (EUR 43 bn in 2004) EUR 42 bn within the EU (EUR 40 bn in 2004)
Borrowing in 2005: EUR 50 bn, through 330 bond issues in 15 currencies (EUR 50 bn in 2004)*
*The 2005 programme was completed as of 04.11.2005.
Funds raised after this date to year-end (EUR 2.9 bn equivalent) are attributed to the 2006 programme.
THE EIB GROUP – THE EIB
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EIB OWNERSHIP
A5.5%AA
21.8%
AAA72.7%
EIB’s shareholders
In case of split rating, the highest rating has been taken
Germany AAA 16.28%France AAA 16.28%Italy AA 16.28%United Kingdom AAA 16.28%Spain AAA 9.77%
Belgium AA 4.51%The Netherlands AAA 4.51%Sweden AAA 2.99%Denmark AAA 2.28%Austria AAA 2.24%Poland A 2.08%Finland AAA 1.29%Greece A 1.22%Portugal AA 0.79%Czech Republic A 0.77%Hungary A 0.73%Ireland AAA 0.57%Slovakia A 0.26%Slovenia AA 0.24%Lithuania A 0.15%Luxembourg AAA 0.11%Cyprus A 0.11%Latvia A 0.09%Estonia A 0.07%Malta A 0.04%
Source: Bloomberg, as of 31 December 2005
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0
10
20
30
40
50
EIB IBRD IADB ADB IFC EBRD AfDB
0
50
100
150
200
250
EIB IBRD IADB EBRD ADB IFC AfDB
EIB is the World’s largestSupranational Issuer* source: Barclays, Dealogic bondware,as of 31 December 2005
Outstanding debt of suprantional
borrowers* source: Barclays, Bloomberg DDIS function, as of 31 december 2005
EUR bn*
EUR bn*
EIB IS LARGEST SUPRANATIONAL ISSUER
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EIB STRATEGIC OUTLOOK
6 Corporate Priority Objectives
Economic and social cohesion in an enlarged EU
Implementing of the Innovation 2010 Initiative (i2i)
Development of Trans-European and Access networks (TENs)
Support for Small & Medium Sized Enterprises
Environmental Sustainability
Support of EU Development and Cooperation Policies in Partner Countries
EIB implements EU policies; a policy driven Bank
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EIB SUPPORT FOR SMALL & MEDIUM SIZED ENTREPRISES (2005: EUR 4.3 bn EIB plus EUR 2.1 bn EIF)
EIB Global Loans
2005 EUR 4.3 bn (EUR 4.7 bn in 2004) EIB long-term loans for SME financing
EIF Venture Capital
2005 EUR 368 m (358m in 2004) in 21 operations
Total EUR 3.1 bn in 217 funds
EIF SME Guarantees
2005 EUR 1.7 bn (1.4 bn in 2004) in 35 operations
Total EUR 9.3 bn 164 intermediariesSME’s account for 99% of private enterprise in the EU
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EIB CORPORATE OPERATIONAL OBJECTIVES (2005)
EUR 34 bn for regional development - 80% of total lending in the EU
EUR 10.7 bn for the Innovation 2010 Initiative (i2i)
EUR 8.3 bn for Trans-European Networks (TENs)
Emphasis on SMEs: EUR 4.3 bn EIB long-term loans, through the EIF: EUR 468 m in venture capital
EUR 1.7 bn in guarantees
EUR 12.3 bn dedicated to the environment and sustainable development
EUR 3.6 bn support for EU external development and cooperation policies
Financing balanced development
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ECONOMIC AND SOCIAL COHESION / REGIONAL DEVELOPMENT2005: EUR 34 bn
Strengthening of the economic potential of “convergence
regions” in the EU
EUR 28 bn in individual loan EUR 6 bn Global Loans for SME financing and small
scale public infrastructure
Main sectors
Communication infrastructure (46%)
Industry & services sectors (22%)
Health & education infrastructure (9%)
Top financing priority
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Tailor-made finance to fit project and promotersubject to adequate security
Large-scale projects (> EUR 25 million)
direct financing indirect financing
Small and medium-scale projects (EUR 40 000 – 25 million)
Global loans with partner banks High-growth innovative SMEs: investment funds,
venture capital or development capital companies
EIB: FINANCING OPTIONS TO PUBLIC AND PRIVATE SECTORS
EIB PARTICIPATION IS LIMITED TO 50% OF A PROJECT’S COST
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INSTRUMENT– Global Loans
FINAL BENEFICIARY– SMEs, <250 FTE’s
– Local Authorities
INTERMEDIARIES– Banks, Financial Institutions
VOLUME– EUR 4.3 bn in 2005
(EUR 4.7 bn in 2004)
ELIGIBLE SECTORS– Regional Development
– European Communications Infrastructure
– Environment and quality of life
– Energy
– International competitiveness of European Industry and support of SMEs
– Health
– Education
– Social Housing
EIB FINANCING: GLOBAL LOANSSMALL AND MEDIUM-SCALE PROJECTS <EUR 25 m
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THE EIB GLOBAL LOAN PRODUCT
EIB
Intermediary Bank
Small / medium sized enterprises
lends; takes risk on intermediary
provides information on end clients
lends and takes risk on end clients
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RELATIONSHIP EIB / COMMERCIAL BANK INTERMEDIARY
Global Loans allow EIB to support SME innovation and thus job creation and economic development in sectors and regions which are considered priority areas across the European Union;
EIB funding aims to improve the terms, conditions and availability of finance to SMEs; and
EIB Global Loans supports the commercial bank relationship with the end client.
Advantages
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EIB’S SUPPORT THROUGH GLOBAL LOANS
Global Loans signed with 200 financial intermediariesthroughout all EU member states.
Target: 50% dedicated to SME’s.
Between 2000 and 2004, EUR 57.7bn was signedfor the creation, modernisation and expansion
of SMEs throughout the EU.
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EIB’S GLOBAL LOAN ACTIVITY IN FINLAND2003-2005
Signatures
EUR 475 m
Counterparts
OKO Bank
Aktia
Finnvera
Municipality Finance
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EIB’S GLOBAL LOAN PARTNERS IN THE NORDIC REGION
SwedenKommuninvest
SwedbankDexia Kommunbank
DenmarkKommunekredit
NykreditRingkjobingLandbobank
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• Targeted beneficiaries: SMEs & MidCaps(low/sub-investmentgrade)
• Product Ideas: RSFF Facilites; Interest Contingent Supplier Facility, Co-financing, Global
Authorisations
• EIB value added: Banks: risk sharing, capital relief, new customers/cross selling, Beneficiaries: risk sharing, higher debt capacity, lower financing cost
SME/MidCapCorporates
Sub-investmentgrae
FundingPartner Bank
Risk SharingFinancing
/
RSFF
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Value added
For banks For RSFF
• Capital relief (bank solvency ratio)
• Alleviate sector and counterpart
financing constraints
• New product development
• Signaling effects to markets
through EIB presence
• Sharing of Know-How
• Rapid rollout of existing network
throughout EU
• Efficiency gain through delegation
• Expand range of SME products
• Widen scope of SME beneficiaries
• Scaleability of products
• Sharing of Know-How (sector,
local market)
Support and involve banks, not crowd them out !
RSFF (CONT’D)
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EIF - EIB’s specialised venture capital arm and SME guarantee provider: Established in 1994 (Subscribed capital EUR 2bn)
Shareholders: EIB (61.9%), EU Commission (30%) and other financial institutions (8.1%)
Annual volume of operations (2005):
• EUR 1.7 bn for guarantee operations (EUR 1.5 bn in 2004)
• EUR 468 m (EUR 358 m) for venture capital funds (commitments)
THE EIB GROUP – THE EIF.
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Business Lines:
VENTURE CAPITAL as “fund of funds”; acquiring holdings in Venture Capital Funds
GUARANTEES and SECURITISATION for the banking sector in favour of SMEs; structured SME operations such as credit lines, counter-guarantees, credit enhancement
EIF: “PURSUIT OF COMMUNITY OBJECTIVES”
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EIF: RESOURCES AND OBJECTIVES
BMWA - ERP
Dahlia SICAR S.R.
European Community
EUR 600m+ Capital increase
(Approx. EUR 325m target under way)
EUR 4bn Revolving
EUR 450m (MAP)EUR 1.1bn (CIP)
Up to EUR 1bn
To be committed to venture capital funds and guarantees
in the EU and Candidate Countries
AND generate strong return on equity
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EIF: ASSETS UNDER MANAGEMENT(AT 30/09/06)
TOTAL COMMITMENTS
NEW COMMITMENTS (1 Jan –30 Sept 2006)
VEHICLES
VENTURE CAPITAL EUR 3.6 bn EUR 450 m 238 funds
GUARANTEES & SECURITISATION
EUR 10.3 bn EUR 490 m
181
banks/
guarantee institutions
TOTAL EUR 13.9 bn EUR 940 m
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EIF: EXAMPLE OF A VENTURE CAPITAL FUND
CO-INVESTOR
(Limited Partners)
CO-INVESTOR
(Limited Partners)
CO-INVESTOR
(Limited Partners)
Venture
Capital
Fund
Management team
SMEs
SMEs
SMEs
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EIF: VENTURE CAPITAL PORTFOLIO (AT 30/09/06)
Key investor in major markets
Niche opportunity player in smaller markets
Geographic spread
Balance portfolio between expansion capital and start-up/ early stage
Portfolio biased towards technology
(65% in ICT & life sciences) Around 30% of portfolio in
multi-country funds Track record in backing new
teams in Central & Eastern Europe
Multi-country34%
Italy7% Germany
8%Spain
7%
France
15%
United Kingdom 15%
Rest Western Europe14%
EUR 3.6bn
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EIF: VENTURE PORTFOLIO STAGE BREAKDOWN (AT 31/08/06)
Heavy share of technology
Buyout12%Expansion
19%
Seed2%
Generalist30%Start-Up
37%
EUR 3.6 bn
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EIF: EXAMPLE OF SECURITISATION
SanpaoloIMI
Originator
SanpaoloIMI
Originator
SeniorSenior
MezzanineMezzanine
JuniorJunior
SMESME
SMESME
SMESME
SMESME
SME loanportfolio
Guaranteedby Confidi
Issuance
of ABS
SPVSPV
Purchase of SME loan portfolio
Originator(Bank)
Originator(Bank)
SeniorSenior
MezzanineMezzanine
JuniorJunior
SMESME
SMESME
SMESME
SMESME
SME loanportfolio
SPVSPV
Purchase of SME loan portfolio
EIF
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Bond-holders Bond-holders AAAAA
A BBB
unrated
AAAAA
A BBB
unrated
Sale of Portfolio or
Aaa/AAACredit default swap
(Reference)Portfolio
Originator SPV
Bond-holders Bond-holders
EIF External guarantor
20% risk weighting
EIF External guarantor
20% risk weighting
EIF: EXAMPLE OF FINANCIAL GUARANTEE
Unconditional, irrevocable guarantee of timely payment of interest and ultimate payment of principal
Typically bonds with BB to A underlying rating, wrapped up to AAA level
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EIF: JEREMIE
• JEREMIE intends to use ERDF funding for enhancing the Access to Finance to SMEs in Regional Development areas through sustainable and « revolving » financial instruments
• JEREMIE is a joint initiative of the European Union (DG Regio + EIB-Group)
• « Joint » also because it combines resources from the EU, National Public Authorities, EIF, EIB and/or other Financial Institutions
Main Objectives:
• Develop the role of SMEs / Entrepreneurship in EU Regional Policy
• Depart from a “grant approach”
• Reduce administrative procedures
• Enhance flexible management of financial engineering
• Create leverage
Need to move away from “grant dependency”
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EIF: JEREMIE’S CYCLE
TECHNICAL ASSISTANCE
SMEs
Micro-financeProviders(MCPs)
Tech TransferActivities
Financial Institutions
Guarantee schemes
Venture CapitalFunds
Etc…
ERDF
GRANTS
MANAGEMENT OF
NATIONAL ACCOUNTSEvalua
tion p
hase:
preparation of O
perational P
rogramm
es
EVALUATION
2006 2007 2013
Attract EIB + IFIs lending
(leverage)
FUNDING
Transforming parts of the ERDF grants into
financial products for SME
Multiplier effect on the budget
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