Financing Innovation in Europe

1. Financing Innovation in Europe Brussels / December 16, 2005 Kim Kreilgaard

2. Table of Content Financing Innovation in Europe 1. Case Studies 2.

3. Financing Innovation in Europe EIB Profile • The EIB is the EU long-term financing institution • The EIB has been created by the Rome Treaty 1958 • The EIB is owned by the 25 EU member states • The EIB is a policy driven institution (EU Commission, Council and EP) • The EIB has a subscribed capital EUR 150bn EUR 164bn • The EIB collects its funds on the capital markets (2004: EUR 50bn) • The EIB signed loans amounting to EUR43.2bn in 2004

4. Financing Innovation in Europe EIB Strategic Objectives • Five priorities • Economic and social cohesion in an enlarged EU • Implementing of the Innovation 2010 Initiative (i2i) • Development of Trans-European and Access networks (TENs) • Support of EU Development and Cooperation Policies in Partner Countries • Environmental Protection and Improvement, including Climate Change and Renewable Energy. EIB Product Portfolio: Direct and indirect Loans for private and public entities Global Loans (small projects/SMEs) MidCap Facility EIB financing always depends on the creditworthiness of the borrower and/or the guarantor(s).

5. Financing Innovation in Europe What the EIB can do? Funding Supply Risk Sharing EIB Policy Support in i2i Funding Costs Signalling Effects • Funding Supply: Increase market supply for loans/guarantees for innovation projects from EIB own resources; from EIB SFF resources; through joint financial products with Commission (RSFF) and through co-financing with financial markets. • Funding Costs: Pass-on funding advantage of EIB after “risk pricing” to private/public sector innovators in order to reduce the cost of innovation • Risk Sharing: Share financial risks with promoters in innovation projects and consequently reduce their risk adjusted cost of capital • Signaling Effects: Due the Bank’s reputation for its prudent lending policy and its strong market/technology know-how, the EIB provides learning/signaling effects for other Banks

6. Financing Innovation in Europe EIB Lending Policy General Lending Policy • EIB follows a policy of close co-operation with the banking sector. • EIB almost always finances projects together with other banks. • Close co-operation with all national and regional promotional banks. Minimum Requirements / Terms • Maximum loan amount: up to 50% of project cost. • Loan tenors: depending on the “economic life” of the investment (generally between 10 and 20 years; exceptions). • Interest Rate: Fixed or Variable • Minimum size per loan: > EUR 25 m (Up to EUR 12.5m: Global Loan; For loans larger than EUR 12.5m, but smaller than EUR 25m: Mid Cap Facility; Exceptions possible) • Business plan and project definition

7. Financing Innovation in Europe The Innovation 2010 initiative (i2i) has been founded in 2000 as a part of the Lisbon Agenda! The 4 strategic areas of i2i lending activities Private and Public Sector Investment in R&D (inlcuding downstream investments) Human Capital Formation Development of Information and Communication Technology (ICT) SME/VC Financing (EIF) The EIB’s objective is to lend EUR 50bn to foster innovation over the current decade of which EUR 32.8bn (65.6%) already achieved.

8. Financing Innovation in EuropeHigher Risk Financing – SFF and RSFF The EIB implemented SFF as a facility – funded from own resources – aiming to provide financing for companies and projects in higher risk categories than the standard EIB requirement. RSFF (implemented in 2007) will be based on the same objective / procedures but focused on RDI investments. Moreover, RSFF is a joint initiative of the European Union and the EIB. Objectives • Overcome market inefficiencies (information failures and spillover effects) • Signalling: Catalyse the mobilization of further resources from EIB and capital markets through co-financing and EIB guarantees • Improve access throughout the EU to financing for corporates, SPVs, public bodies, & SMEs to invest in priority technology themes

9. Financing Innovation in Europe Higher Risk Financing – SFF and RSFF The EIB will continue its approach of EIB own resources/SFFAND enhance its activities by a continous product innovation process. Strategic Approaches for RDI Financing SFF Risk sharing with banks/other specialists (e.g. Automotive RDI (GER), Coficiné (FR), Cofiloisirs (FR)) 1 SFF Low/sub-investmentgrade companies (e.g. Bombardier (UK), Andasol (ES), Atmel (FR)) 2 Risk Sharing Finance Facility (RSFF) 3 • The EIB and the European Comission are developing under FP7 a new dedicated facility for RTD financing.

10. Financing Innovation in Europe Higher Risk Financing - RSFF Eligibility • Projects eligible under FP7 • Large European RTD projects (joint technology initiatives and large collaborative projects) • Participants in multi-partner consortia (Midcaps, large corporates, SMEs, PPPs, etc.) Added Value • Improve access to finance by sharing risks between EIB and the EU Budget(i)to leverage larger volume of high risk lending and (ii) to finance riskier projects • Demonstrate the feasibility and bankability of numerous research projects

11. Table of Content Financing Innovation in Europe 1. Case Studies 2.

12. Case Study I: Automotive RDI (I) The Supplier Dilemma Reduction of R&D investment for OEMs% of total R&D Expenditure Shorter R&D Cycles with higher CapexIllustrative Present Future CapEx CapEx OEMs Supplier Years Years Suppliers are forced to take more R&D risk and to finance an increasing number of larger R&D projects. • Driven by OEM* pressure to reduce their share in the overall value chain (esp. upstream), automotive suppliers find it increasingly difficult and expensive to fund R&D projects • As a consequence, financing has become the crucial element for Suppliers to succeed in tenders of new R&D projects with leading OEMs Source: Roland Berger, VDA, HVB Equity Research * OEM: Original Equipment Manufacturer

13. Case Study I: Automotive RDI (II) Tailor-made EIB Solution OEM Automotive Suppliers Lesees/Final Beneficiary Deutsche Leasing Leading German Leasing Financial Structuring Development and production of a car component Technology Leasing Hard Assets + IPR Re-Financing + Partial Credit Risk of Lesee Credit Risk Distribution: Deutsche Leasing: 10% - 49% Saar LB: > 26% EIB: Max. 25% Saar LB Global Loan Risk Sharing • The combination of a classical Global Loan with a tailor-made risk sharing guarantee scheme generates a capital relief for SaarLB. • Hence, risk capacity for SaarLB and Deutsche Leasing for R&D financing of automotive suppliers is improved and will lead to more lending activity • EIB will delegate due diligence to Deutsche Leasing and SaarLB (two independent and experienced players in that field) • Support innovative models for IPR based financing

14. Case Study II: Chip Development Tailor-made EIB Solution OEM Semiconductor R&D Supplier (Rating: BB) Commercial Bank Financial Structuring Development of a new memory chip Debt Finance (Senior/Junior Debt) Direct Loan (max. 50% of CAPEX) Refinancing(max. 50% of CAPEX) Guarantee OR • i2i projects promoted by low-investmentgrade / sub-investmentgrade corporations can (in principle) be financed either direct through RSFF/SFF operations OR indirect using the promoters bank as a intermediary. • Indirect financing could be complemented by a guarantee with the intermediary, which would lead to a capital relief for the commercial bank and hence a higher level of lending activty. • In both cases, the EIB would conduct a comprehensive project and credit due diligence.

15. Thomas C. Barrett Director AGI Phone: (+352) 4379 7006 Fax: (+352) 4379 7099 eMail: barret@eib.org European Investment Bank 100, boulevard Konrad Adenauer L-2950 Luxembourg Guy Clausse Associate Director Operational Lending Policies Phone: (+352) 4379 2570 Fax: (+352) 4379 3494 eMail: clausse@eib.org European Investment Bank 100, boulevard Konrad Adenauer L-2950 Luxembourg Jean-Jaques Mertens Associate Director Project Directorate Phone: (+352) 4379 8612 eMail: mertens@eib.org European Investment Bank 100, boulevard Konrad Adenauer L-2950 Luxembourg Kim Kreilgaard Head of Structured Finance in i2i Phone: (+352) 4379 7116 Fax: (+352) 4379 7198 eMail: k.kreilgaard@eib.org European Investment Bank 100, boulevard Konrad Adenauer L-2950 Luxembourg Thank You !