Usporedno izlaganje 1:Studije slučaja o investicijskim platformamaa. Urban investicijska platforma, Bugarska –

Olivier Dumoulin, savjetnik za financijskeinstrumente, EIB

Parallel session 1:Case studies on Investment Platforms

a. Urban Investment Platform, Bulgaria – OlivierDumoulin, Financial Instruments Adviser, EIB

Investment platformscase studies – Bulgaria

Olivier DumoulinFinancial Instruments Advisory

March 2018

Content

• Municipal Investment Platforms challenges • Investment level of Croatian Local Governments• Financial instruments for Urban development in Bulgaria• EIAH support to the Fund Manager of Financial Instruments in

Bulgaria• How to Combine ESIF and EFSI in an Investment Platform for urban

development projects

Municipal Investment Platforms challenges• Some smaller and medium sized municipalities, can suffer from poor

access to affordable, long term finance.• Also a lack of appropriate credit ratings/credit worthiness to tap the

long term capital markets.• Municipalities can also often be constrained by central government

imposed borrowing limits.• Banks may not be able to offer required long term debt maturities

to municipalities, needed to match the projects’ economic life.• Municipal companies involved in longer term projects (E.g.

infrastructure, social housing) may need additional «patientcapital » at affordable costs.

Municipal Investment Platforms challenges• Investment platforms provide a means by which smaller

municipalities are able to pool their investment programmestogether and generate greater scale.

• Can be designed to be off the balance sheet of municipalities – usingthe balance sheet of financial intermediaries of newly created fundSPVs.

• ESIF (or other public funding) and possibly EFSI may provide a riskbuffer for other investors in the platform, enabling it to invest inactivity that may otherwise have been too high risk.

• Investment platforms can help to convey technical assistancetogether with a funding solution, which may be key in the successfulimplementation of municipal projects

Local Governments (LG) in Croatia - NALAS report*• The global downturn of 2008–2009 hit much of the SEE region very hard.

Croatia was hit hardest by the crisis and recovery took the longest.• The crisis reduced LG revenues, expenditures and investments significantly• Many of the 555 LG (without Zagreb) increased their budget deficits and

turned to borrowing in 2010.• Total public investment materially fell since 2007. LG share in the total remain

above 70% until 2015, when it dropped to 41%.• LG cut their investment level in absolute term as a result of diminishing

revenues and to avoid raising tax rates and user fees and the latter has yet to recover.

*Fiscal decentralization Indicators for South-East Europe: 2006-2015, Network of Associations of Local Authorities Associations (NALAS), May 2017

LG in Croatia - NALAS report*

*Fiscal decentralization Indicators for South-East Europe: 2006-2015, Network of Associations of Local Authorities Associations (NALAS), May 2017

LG in Croatia - NALAS report*

*Fiscal decentralization Indicators for South-East Europe: 2006-2015, Network of Associations of Local Authorities Associations (NALAS), May 2017

Case study: creating investment platforms in Bulgaria – EIAH Support• Memorandum of Understanding signed in relation to creation of local

hub to provide additional project development and screening capacity.• Signature of Advisory Services Agreement (ASA) in relation to the

development of new urban and environment investment platforms toincrease the firepower available for municipal investment in Bulgaria

• The ASA comprises two elements:• Assisting FMFIB in the design and launch of the Call of Interest to Financial

Intermediaries (FI)• Assessing the possibility to complement the ESIF financing with EIB funding

under the European Fund for Strategic Investments (EFSI) in order to create an ESIF/EFSI Investment platform.

Case study: creating investment platforms in Bulgaria• In the Bulgarian case, Financial Instruments are currently developped

by the Managing Authority in the field of Urban Development usingESIF resources

• The objective of the creation of an Investment Platform in this field isto find the best way to complement the currently developed ESIF instrument

Let’s first understand how the ESIF urban developmentFinancial Instrument will work before describing step by step how theEFSI component wil be designed to create the Investment Platform

Market needs• Municipal lending has the following characteristics:

• High interest rates• Maturities of maximum 10 to 12 years• High requirement in terms of collateral• Smaller municipalities have difficulties to get access to bank financing

• Clear market gaps in terms of:• Long term financing in line with economic life of urban development project• Lower interest rate supporting investment economic viability• Guarantee instrument substituting to collateral requirements and supporting

smaller projects access to financing

How can EFSI complement the UDF• The introduction of EFSI increases the scale of funding available but

also broadens the scope of what can be financed.• EFSI could provide financing for projects outside the targeted by ESIF

ring-fenced zones of cities as long as these projects are part of the urban development plans (IUDPs)

• Eligible sectors for urban development projects under EFSI are as follows:

• Urban renewal, revitalisation and regeneration • Urban Environmental Infrastructure and Energy Efficiency • Municipal Social infrastructure• Local Economic Development

How can EFSI complement the UDF

• Projects which will be funded by EFSI will need to be in line with EIB Eligibility criteria. They will be analysed in terms of:

• Strategic orientations: (E.g project linked to a Sustainable Urban Development

Strategy, economic and financial justification of the project)

• Environmental and social impact assessment (E.g. impact on protected sites)

• Climate change issues (objective and impact on climate change)

• Employment (E.g. creation of temporary and permanent jobs linked to the project)

• Public procurement

for ESIF-eligible investments - E.g. acquisition of new buses by a municipal transport company

• 40% ESIF funding through the FMFIB • 30% FI co-funding at own risks, • 30% FI co-funding in risk sharing with EIB (EIB guarantee would cover 50% of

FI’s co-financing)

for ESIF-non eligible investments but in line with EFSI criteria - E.g. healthcare infrastructure within IUDP

• 0% ESIF funding through the FMFIB (not eligible)• 50% FI at own risks, 50% EIB risk sharing

EFSI complement in risk-sharing form

EFSI complement in risk-sharing form• Offers comprehensive funding solutions to municipalities, which have

strategic investment projects beyond ESIF geographic or sectorial eligibility zones.

• Provide FIs with a risk mitigating solution beyond pure funding, which seems less demanded in a context of strong liquidity in the market.

• Help FIs to manage their credit risks by decreasing concentration risks (on the sector or individual counterparts) and reduce relevant Risk Weighted Assets, notably for municipal companies. Capital deduction on the exposure covered by the EIB’s guarantee due the latter IFI status and AAA rating.

EFSI funding to a layered Fund

EFSI funding to a layered Fund

• Provide EIB longer-term and affordable resources to a specialised funding vehicle with experience and track record in financing municipal investment projects, which would pass on these favourable borrowing conditions to final beneficiaries.

• Help selected FIs to propose comprehensive funding solutions to municipalities, which have strategic investment projects beyond ESIF geographic or sectorial eligibility zones.

• Help diversify the funding options offered to municipal companies including potentially senior debt, subordinated loans and/or equity investments.

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Investment Platform structuring

Source: EIB

Questions & Answers

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Thank you for your attention !