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« EIB GROUP SUPPORTING THE REGIONAL SME FINANCING OPERATIONS »

« 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.

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« EIB GROUP SUPPORTING THE REGIONAL SME FINANCING OPERATIONS »

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  1. « EIB GROUP SUPPORTING THE REGIONAL SME FINANCING OPERATIONS » 4th Theme Seminar, Financial Engineering Friday 27 October 2006 SAULI NIINISTÖ Vice President

  2. EIB • GLOBAL LOANS EIF • VENTURE CAPITAL • GUARANTEES & SECURITISATION • JEREMIE 2

  3. 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 KEY • Medium-sized firms, 50 to 250 employees • Large enterprises • Small firms 10 to 49 employees • Micro-business 1 to 9 employees Source: Eurostat, Commission Communication on Modern SME policy for Growth and Employment (2005)

  4. THE EIB GROUP – THE EIB 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.

  5. EIB OWNERSHIP EIB’s shareholders

  6. EIB IS LARGEST SUPRANATIONAL ISSUER EUR bn* EIB is the World’s largest Supranational Issuer * source: Barclays, Dealogic bondware,as of 31 December 2005 EUR bn* Outstanding debt of suprantional borrowers * source: Barclays, Bloomberg DDIS function, as of 31 december 2005

  7. 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

  8. 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 intermediaries SME’s account for 99% of private enterprise in the EU

  9. 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

  10. ECONOMIC AND SOCIAL COHESION / REGIONAL DEVELOPMENT2005: EUR 34bn • 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 Top financing priority

  11. EIB: FINANCING OPTIONS TO PUBLIC AND PRIVATE SECTORS EIB PARTICIPATION IS LIMITED TO 50% OF A PROJECT’S COST • 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 Tailor-made finance to fit project and promotersubject to adequate security

  12. EIB FINANCING: GLOBAL LOANS SMALL AND MEDIUM-SCALE PROJECTS <EUR 25 m • 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 • 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)

  13. THE EIB GLOBAL LOAN PRODUCT EIB provides information lends; on end clients takes risk on intermediary Intermediary Bank lends and takes risk on end clients Small / medium sized enterprises

  14. RELATIONSHIPEIB / COMMERCIAL BANK INTERMEDIARY Advantages 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.

  15. EIB’S SUPPORT THROUGH GLOBAL LOANS Global Loans signed with 200 financial intermediaries throughout all EU member states. Target: 50% dedicated to SME’s. Between 2000 and 2004, EUR 57.7bn was signed for the creation, modernisation and expansion of SMEs throughout the EU.

  16. EIB’S GLOBAL LOAN ACTIVITY IN FINLAND 2003-2005 Signatures EUR 475 m Counterparts OKO Bank Aktia Finnvera Municipality Finance

  17. EIB’S GLOBAL LOAN PARTNERS IN THE NORDIC REGION Sweden Kommuninvest Swedbank Dexia Kommunbank Denmark Kommunekredit Nykredit Ringkjobing Landbobank

  18. RSFF SME/MidCapCorporates Sub-investmentgrae Funding Partner Bank / Financing Risk Sharing • 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

  19. RSFF (CONT’D) 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 networkthroughout 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 !

  20. THE EIB GROUP – THE EIF. 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)

  21. EIF: “PURSUIT OF COMMUNITY OBJECTIVES” • 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

  22. EIF: RESOURCES AND OBJECTIVES BMWA - ERP European Community Dahlia SICAR S.R. EUR 600m + Capital increase (Approx. EUR 325m target under way) EUR 450m (MAP) EUR 1.1bn (CIP) EUR 4bn Revolving 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

  23. EIF: ASSETS UNDER MANAGEMENT (AT 30/09/06)

  24. EIF: EXAMPLE OF A VENTURE CAPITAL FUND CO-INVESTOR (Limited Partners) Management team SMEs CO-INVESTOR (Limited Partners) Venture Capital Fund SMEs CO-INVESTOR (Limited Partners) SMEs

  25. EIF: VENTURE CAPITAL PORTFOLIO (AT 30/09/06) 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 Italy 7% Germany 8% Multi-country 34% Spain 7% France 15% Rest Western Europe 14% United Kingdom 15% EUR 3.6bn Key investor in major markets Niche opportunity player in smaller markets

  26. EIF: VENTURE PORTFOLIO STAGE BREAKDOWN (AT 31/08/06) EUR 3.6 bn Heavy share of technology

  27. Sanpaolo IMI Originator Originator (Bank) Senior Senior SPV SPV SME SME SME loan portfolio Guaranteed by Confidi SME loan portfolio SME SME Purchase of SME loan portfolio Purchase of SME loan portfolio Issuance of ABS SME SME Mezzanine Mezzanine SME SME Junior Junior EIF: EXAMPLE OF SECURITISATION EIF

  28. 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 Originator AAA AA A BBB unrated SPV Bond-holders (Reference) Portfolio Sale of Portfolio or Aaa/AAA Credit default swap Bond-holders

  29. 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”

  30. TECHNICAL ASSISTANCE EIF: JEREMIE’S CYCLE 2006 2007 2013 • Micro-finance Providers (MCPs) • Tech Transfer Activities • Financial Institutions • Guarantee schemes • Venture Capital Funds • Etc… MANAGEMENT OF NATIONAL ACCOUNTS ERDF GRANTS SMEs Evaluation phase: preparation of Operational Programmes FUNDING Attract EIB + IFIs lending (leverage) • Transforming parts of the ERDF grants into financial products for SME • Multiplier effect on the budget EVALUATION

  31. http://www.eib.org

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