1 RISK SHARING FINANCE FACILITY Research Connection 2009 Prague 8 May 2009 Anna Krzyzanowska

2 Risk-Sharing Finance Facility (RSFF) Introduction

3 EU-27 Russia US Japan R&D intensity (%GDP) China EU hampered by low private sector investments

4 Risk-Sharing Finance Facility (RSFF): The investment and financing gap Despite increased FP 7 budget for 2007 – 2013 (EUR 54,6 billion), there is a lack of funding for excellent and top quality R&D projects at EU level Investment in R&D is crucial for Europes competitiveness and growth potential Lack of private investment in R&D has been identified as the single key factor for Europes relatively weak total investment in R & D R&D investment carries a high(er) risk and uncertainty; scarce financing resources in Europe for such risky projects (market deficiency)

5 December 2005 European Council: The European Council invites the Commission in cooperation with the European Investment Bank (EIB) to examine the possibility of strengthening their support for Research and Development by up to a maximum of EUR 10 billion through a financing facility with risk sharing components to foster additional investment in European research and development, particularly by the private sector. A political request to increase financial support to R&D

6 Risk-Sharing Finance Facility Added value An innovative financing mechanism to: Foster increased private investment in research by improving access to loan finance. Risk-sharing between the Community and EIB to allow: - Larger volume of risky lending to R&D - Financing of riskier, but creditworthy projects Generate a leverage effect so that the volume of extra lending by EIB and its partner banks is a 4 to 6 multiple of the Community funds provided to the facility. Rely on an existing EIB facility (SFF), and therefore benefit from EIB s experience and management.

7 Risk-Sharing Finance Facility (RSFF) Implementation Strategy

8 RSFF implementation strategy Risk categories RSFF Risk Coverage Range RSFF is a debt based instrument not a grant Financing does not involve a subsidy element The facility does not concern risk capital such as venture capital RSFF concerns companies or projects mature enough to demonstrate capacity to repay and service debt on the basis of a credible business plan. An external rating is not required.

9 RSFF implementation strategy Eligible project cost Project capital expenditures in tangible assets. Intangible assets: Research staff cost Incremental working capital requirements Acquisition of Intellectual Property Rights Multi-annual R&D budgets (typically 3-4 years) Financing up to 50% of total cost, except particular cases in line with EIB strategic orientations (ie: environment, renewable energies; …)

10 RSFF implementation strategy Beneficiaries of RSFF financing Mid-Caps and large corporates (typically unrated / sub investment grade / turnaround situations) SMEs Research Institutes Universities Special Purpose / Project Companies Research Infrastructure promoters Any size and ownership

11 Indirect loans / guarantees Commercial bank Beneficiary (promoter) Refinancing/Guarantee Loan Direct loans / guarantees Comm. bank (Co-finance) Borrower (promoter) Loan or Guarantee RSFF implementation strategy Financing modes – individual financing Loan Guarantee

12 Risk-Sharing Finance Facility (RSFF) An approch to smaller projects

13 SMEs: Complementarities between CIP and FP7 (RSFF) Risk Capital 1 CIP Resources (SME) 2 RSFF (SME / MidCap) 3 Entrepreneur, friends, family Business Angels Seed/Early Stage VC Funds Formal VC Funds Bank Loans and Guarantees Seed / Start-Up PhaseEmerging Growth PhaseDevelopment Phase Facility: High Growth Innovative SME Scheme (GIF), Ecotech Purpose: IP financing, technology transfer, seed financing, investment readiness Target Group: VC Funds, Business Angels EIF Product: Fund-of-Funds Facility: CIP Guarantee schemes Purpose: Growth financing for SMEs Target Group: Formal VC Funds, CLOs EIF Product: SME guarantees (loans, microcredit, equity/mezzanine, securitisation Facility: RSFF Purpose: RDI financing Target Group: SMEs/MidCaps, Banks, PE Investors, EIB Product: Loans (incl. Mezzanine), Funded Risk Sharing Facilities with Banks (Investors)

14 EIB Borrower EIB For loans of EUR 7.5 million or more - direct involvement by the EIB Borrower Intermediary For all loans where borrowers wish to work with their own banks, in particular those of less than EUR 7.5 million - sharing of RSFF benefits with intermediaries (e.g. through partial guarantees) Refinancing/ Guarantee EIB and its partner banks (intermediaries)

15 Risk-Sharing Finance Facility (RSFF) Results to date

16 RSFF results and portfolio Volumes: EUR 2.4 billion authorised by the EIB under RSFF by February 2009, of which billion have already been signed (under EC window: 48 %, EIB window 52 %) Main sectors financed so far: renewable energy technologies, engineering and automotive, life science and ICT, plus risk-sharing facilities with partner banks Geographical spread: projects located in 14 countries by early 2009 (approved RSFF projects) RSFF financing in the form of direct corporate loans, project finance to special purpose vehicles and risk-sharing arrangements for mid-cap / SME projects

17 RSFF portfolio Geographical Spread – signatures until 30/11/2008

18 And the crisis in all this? The current market sentiment: – (i) significant increases in credit spreads, –(ii) sharp decline in commercial bank financing supply due to funding as well as capital constraints of banks in the market and –(iii) decreasing RDI investments due to expected economic down- turn. The implications for RSFF are both positive (more projects) and negative (high mortality rate Market/business risk profiles increased significantly hence an increase in credit risk for new transactions but also for existing RSFF loan exposures. Execution time for new operations is expected to increase and sophisticated financial structuring to mitigate operational risks more and more important

19 SMEs/Mid Cap – Facility Structures Approved Signature of the Automotive Supplier RDI Facility (loans and guarantees to RDI projects of SMEs and mid cap automotive suppliers in Germany; EUR 100m + EUR 50m) - RSFF Approval of KfW Ipex Risk Sharing Facility (loans and guarantees to mid-cap companies in Germany; EUR 100m + EUR 50m) - RSFF Approval of RZB Group Risk Sharing Facility (loans and guarantees to mid cap companies in Austria, Hungary, Romania; EUR 100m + EUR 70m) – partially RSFF Approval of CS Risk Sharing Energy Efficiency (loans and guarantees to SMEs in the Czech Republic; EUR 100m + EUR 60m) – SMEs, non RSFF

20 Risk-Sharing Finance Facility (RSFF) Examples

21 Solucar Solar Thermal Power project : Europe's first commercially operating power station using the sun's energy, in west of Seville (Spain) 50-million RSFF loan to further develop a large scale application of Concentrating Solar Power (CSP) technology, generating electricity without greenhouse- gas emissions Field of mirrors to concentrate solar radiation on a thermal receiver Financing solar power using indigenous renewable energy to contribute to combat climate change

22 PharmaMar : Spains leading biotech company dedicated to developing innovative anticancer treatments from marine origin Biopharmaceutical research & development in the areas of oncology and orphan diseases Different forms of cancer targetted, including rare cancers 30-million RSFF loan Innovative anticancer treatments helping bring 4 cancer drugs to the market

23 AVL: Austrian family-owned specialist with strong reputation for producing fuel-saving technologies for powertrain systems Offers research and development support to many major car manufacturers worldwide. 30-million RSFF loan to help AVL extend powertrain R&D and research in the areas of hydrogen fuel-cell technology, nanocomposites and engine technologies Cleaner engines improving energy efficiency

24 Risk-Sharing Finance Facility (RSFF) Information & contacts

25 RSFF contact points European Commission, DG RTD Directorate B – « European Research Area: Research programmes and capacities » Unit B.04 – « Regions of Knowledge and Research Potential » –RSFF Sector Jean-David MALO, Head of Unit, ( ) Martin KOCH Marie-Cécile ROUILLON

26 RSFF contact points European Investment Bank Directorate for Operations in the European Union and Candidate Countries Division: Action for Growth Instruments –Innovation 2010 Initiative (i2i) Heinz OLBERS Pavla RANDOVA : –

27 Thank you for your attention