Quarterly Newsletter - Issue 5

--CONTENTS--

1) Foreword from the Chief Executive
2) EIF latest news & operations
3) Latest publications
4) How to subscribe - how to unsubscribe
5) Contact

1) Foreword from the Chief Executive

Dear Readers,

"Not everything that can be counted counts, and not everything that counts can be counted". However, for the 10th anniversary of EIF that was celebrated a few days ago, I would like to say that at least sometimes, things that can be counted count!

Some of you may remember the "origins" of EIF which are not too far away, when EIF was created in 1994 in response to an invitation from the Edinburgh summit of December 1992. Originally, the aim of the fund was to support investments in two fields essential to the development of the European economy: TENs and SMEs. Already since its inception, EIF was shaped as a public-private partnership, with a hybrid shareholder base that included the European Commission, the European Investment Bank, the European Investment Bank (EIB) and a wide range of financial institutions.

We must praise the forward-looking capacity of our "genitors" as the public-private partnership formula has been a successful one. I would like to recall two famous quotes from Jacques Delors and Margaret Thatcher, on one hand Delors' "without a vision, people perish" and Thatcher's reply "I want my money back". Here at EIF we try to conciliate these two approaches. Yes, we support an ambitious Europe and are fully committed to its objectives, notably in the field of competitiveness, and yes "we want our money back", acting commercially alongside market players.

I strongly believe that the performance of this young and dynamic institution lies in its ability to match these two objectives, being at the same time at the crossroads of market forces and the EU institutional setting.

EIF will certainly witness major new developments in the coming years, in particular as an EU operational platform and for the provision of technical assistance and advisory services, in line with the Lisbon objectives.

Francis Carpenter
Chief Executive

2) EIF latest news & operations

01/01/2004: Advisory Services

EIF Advisory Services provide advice as to venture capital, guarantee schemes and complex financial structures. This is done through the provision of strategic and technical advice on the design, implementation and evaluation of finance policies, projects and structures to a range of counterparts, both public and private. This new activity was launched at the end of 2003 in order to optimise the impact and benefits of EIF interventions, to cover the existing knowledge gap and to contribute to the diffusion of best market practices in its business fields. The ultimate goal is to contribute to the pursuit of European Union objectives, in particular the promotion of entrepreneurial spirit, regional development and the cohesion of the Union. Advisory activities are carried out on a fee-paying basis, independently and commercially under market conditions. In organisational terms, it has been structured independently from EIF operational activity, and the advisory services contracts clearly state that the provision of such services should not lead to an EIF involvement as investor or guarantor. The advisory web section has been created and includes a list of deals. Link: eif_advisory_regions.pdf

01/07/2004: EUR 40m EIF commitment in Accent Equity 2003

EIF signed a commitment to invest up to EUR 40 million in "Accent Equity 2003", a mid-market fund targeting expansion stage and buy-out type investments in companies with proven and scalable business models. The geographic focus of the fund is on the Nordic region with a main emphasis on Sweden. The management team of the fund is the Stockholm-based Accent Equity Partners AB. Founded in 2003 by the merger of two management teams, Nordico and Euroventures, Accent Equity Partners is a pro-active investor that has developed a solid track record in buyout and expansion capital transactions. With Accent Equity 2003, the team will continue with the proven investment strategy of their predecessor funds. Before merging, Nordico and Euroventures managed a total of six funds, including the Baltic Rim Fund Ltd, managed by the former Euroventures team, in which EIF is an investor.

01/07/2004: Another giant leasing securitisation in Italy, originated by Fin-Eco Leasing SpA

The increased number and volume of deals such as F-E Green and the Intesa Lease deal set by EIF earlier this year, are paving the way for greater availability of long-term lease finance for Italian SMEs. Both deals are the biggest that have ever been set by EIF in Italy, and are certain to have a positive impact on the Italian lease industry. Under the terms of the F-E Green deal, EIF provides a EUR 108.5m guarantee for the Class B notes of an Italian securitisation transaction of lease receivables to SMEs, covering any shortfalls in interest and principal due to the Class B noteholders. The notes are issued by F-E Green and arranged by MCC S.p.A. (Capitalia Gruppo Bancario). The securitised portfolio consists of three sub-pools: real estate, vehicles and equipment leases, the largest being the real estate sub-pool, representing approximately 64% of the total. There are 2 classes of rated notes: the Class A notes, rated AAA/Aaa/AAA (Fitch/Moody's/S&P) thanks to subordination, and the Class B notes, rated AAA/Aaa/AAA (Fitch/Moody's/S&P) thanks to the EIF wrap. This securitisation deal represents a first opportunity for EIF to cooperate with Fin-Eco Leasing, ranked 5th in terms of volumes originated in the Italian leasing market with no previous relationship with EIF.

22/06/2004: Financing of research, EIF and Commission launch the "Technology Transfer Accelerator"

The European Investment Fund (EIF) and the Directorate General Research of the European Commission have signed an agreement to launch a feasibility study on a new type of risk capital and technology transfer investment vehicle (the "Technology Transfer Accelerator") linking centres of excellence and universities from different European countries. The aim of the study, funded by the European Commission and undertaken by EIF, is to bridge the financing gap between university/spin-off research and early stage investment trough a scheme that could be implemented in the near future.

19/05/2004: Securitisation transaction in FCC GIAC 5

The EIF has provided a guarantee to credit enhance one mezzanine tranche of a securitisation of SME loans originated by GIAC (Groupement des Industries Agricoles, Alimentaires et de Grande Consommation). Based in France, GIAC provides financial assistance to French companies active in the agriculture, food, and consumer goods sectors. This up to EUR 90 m transaction is the fifth SME financing securitisation originated by GIAC and the second with EIF involvement. Alessandro Tappi, head of Guarantees & Securitisation at EIF said, "GIAC 5 presents interesting and unique features. All the loans will be originated with a view to being securitised and will be disbursed quarterly upon issuance of the Asset-backed notes during the 2 year ramp up period. The spread of each loan reflects the all-in cost of the securitisation and there is mutualisation, amongst the borrowers, of the First Loss Piece. It is an excellent example of how securitisation techniques can provide SMEs with direct access to capital markets at attractive costs also in the case of relatively small transactions. GIAC's good quality of origination and servicing capabilities played a key role in the EIF decision to support this transaction."

12/05/2004: EUR 40m for French expansion capital and buy-out fund MMF III

EIF has signed a commitment to invest up to EUR 40 million in Middle Market Fund III ("MMF III"), a French fund targeting to raise EUR 250 million and focusing on high-quality medium-sized firms across all segments of the French economy, but with a specific emphasis on areas which reflect the sector expertise of the various team members: business to business services, consumer goods/branding, food industry, health related sectors, manufacturing industries and retail. MMF III will focus both on expansion capital opportunities and small buy-out operations aiming towards a balanced split between the two investment types. Managed by Paris-based Banexi Capital Partenaires SA, the Fund recently achieved a first closing at approximately EUR 109m. The management team has already acquired considerable experience through its previous middle market fund MMF II, which was launched in 1999, and through all investments it made since 1993 on behalf of Banexi, a wholly owned subsidiary of BNP Paribas. EIF has no prior relationship with the team, although EIF is an investor in Banexi Ventures II and III, managed by Banexi Venture Partners, a sister management company of Banexi Capital Partenaires.

26/04/2004: EUR 11.1 million guarantee to Estonian Guarantee Fund "KredEx"

EIF has agreed to provide a EUR 11.1m counter-guarantee under the framework of the European Commission's "Multiannual Programme for Enterprise (MAP)" with the Estonian Credit and Export Guarantee Fund KredEx ("KredEx"). Established in 2000 by the Estonian Ministry of Economic Affairs and Communications, KredEx is a guarantee fund with the aim to support the development of SMEs as well as export and housing. KredEx's loan and leasing guarantees are issued to the benefit of starting and already operating small and medium-sized companies, unable to obtain adequate financing due to their insufficient collateral or operational history. By entering into this agreement, the seventh one signed in the new Member States and Accession countries under the MAP Guarantee facilities, EIF will for the first time cooperate with an intermediary in Estonia. Including KredEx, EIF's guarantee portfolio in the new Member States and the Accession countries now totals some EUR 104m in counter-guarantees signed in Bulgaria, The Czech Republic, Estonia, Latvia, Lithuania, Romania and Slovenia.

21/04/2004: EIF enters first German securitisation deal in 2004: Symvonie

EIF has agreed to provide a guarantee in a securitisation transaction issued by Symvonie 2004-1 plc (Germany). The securitised portfolio consists of loans to SMEs operating in the region of North-Rhine Westphalia. The deal, originated by National-Bank AG, is EIF's first German deal in the year 2004 and its 13th overall. It represents the largest single commitment ever entered into by EIF (just above EUR 182 m). It is also the first operation where a public entity, the Land, has participated as mezzanine guarantor in the transaction.

30/03/2004: Secondary market transaction on Promise-I 2000-1

In a secondary market operation, EIF has provided a EUR 7m guarantee for credit-linked notes of issued by Promise-I 2000-1 plc (Germany). The notes are backed by a portfolio of loans to German SMEs originated by IKB Deutsche Industriebank Aktiengesellschaft. This deal represents EIF's third secondary transaction. Alessandro Tappi, Head of Guarantees and Securitisation at EIF, said, "SME ABS represent a very illiquid segment of the capital markets, particularly for mezzanine tranches. By selectively providing support to the liquidity of the secondary market, EIF sends an important positive signal to originators and primary market investors in mezzanine ABS backed by SME finance: the positive effects of secondary market enhanced liquidity translate into wider investor base, higher willingness to invest and lower liquidity premiums payable in the primary market."

05/03/2004: EIF counter-guarantee under MAP Loan Window for INVEGA (Lithuania)

EIF has signed a EUR 13.6m loan guarantee agreement under the framework of the European Commission's "Multiannual Programme for Enterprise (MAP)" with the Lithuanian limited liability company INVEGA. Established in 2001 and 100% owned by the Lithuanian State, INVEGA 's objective is to support Lithuanian SMEs by extending guarantees on investment loans provided by banks to micro and small companies with up to 50 employees. INVEGA is the only institution with such a mission in Lithuania. By entering into this agreement, the sixth one signed in the Acceding and Accession Countries under the MAP Guarantee Facilities, EIF will for the first time cooperate with a guarantee intermediary in Lithuania. Eligible guarantees to be covered would be referenced to medium and long-term investment loans. Additionality is measured in terms of increased volumes of INVEGA's first installment guarantees, an innovative guarantee product aimed at supporting small businesses in Lithuania.

27/02/2004: EIF counter-guarantee under MAP Loan Window for Slovene Enterprise Fund

EIF signed a EUR 5.5m loan guarantee agreement under the framework of the European Commission's "Multiannual Programme for Enterprise (MAP)" with the Slovene Enterprise Fund (SEF). Established in 2000 as a legal successor to the Small Business Development Fund of the Republic of Slovenia, SEF 's objective is to support investment projects carried out by SMEs providing long-term loans and guarantees. By entering into this agreement, the fourth one signed in the Acceding and Accession Countries under the MAP Guarantee Facilities, EIF will for the first time cooperate with an intermediary in Slovenia. Under the agreement, EIF will provide for a counter-guarantee structure with full delegation to the Slovene Enterprise Fund. Additionality will be measured in terms of volumes and enhanced access to debt finance as the new programme particularly targets start-ups.

27/02/2004 EIF guarantee under MAP Loan Window for Raiffeisen Bank SA (Romania)

Under the Loan Guarantee Facility of the "Multiannual Programme for Enterprise (MAP)", EIF has today signed a EUR 20m agreement with Raiffeisen Bank SA (RB) in Romania, marking the EIF's first agreement with an intermediary in Romania and marking EIF's fifth guarantee deal in an Acceding/Accession Country under the MAP Facilities. Raiffeisen Bank SA is the result of the merger between the former Banca Agricola and Raiffeisenbank Romania, the corporate subsidiary of RZB Romania. It provides the full range of financial services to corporate clients and consumers. Particular attention is paid to SMEs and the bank is committed to expand in this segment of the market. Under its agreement, EIF will provide for a guarantee structure with full delegation to Raiffeisen Bank SA. The loans provided by RB to SMEs would have loan maturities of minimum 36 months and finance investments. In line with the additionality requirements and objectives of the Facility and, thanks to the EIF guarantee, RB will offer a new lending programme with reduced collateral requirements and either an extension of the maximum loan maturity or a lower margin charged to SMEs.

26/02/2004: EIF sets its largest leasing securitisation ever, originated by Intesa Leasing (Italy)

Originator of the securitised portfolio, which totals some EUR 1.495bn, is Intesa Leasing, the leasing subsidiary of Banca Intesa. Taking into account its considerable size, the closing of this latest transaction by EIF is certain to have a positive impact on the Italian leasing market. Under the terms of the deal, EIF provides a EUR 83.8m guarantee for a mezzanine tranche of an Italian securitisation transaction of lease receivables to SMEs issued by Intesa Lease Sec. Srl and arranged by Banca Intesa, Milan. The portfolio consists of leases to Small and Medium-sized Enterprises operating in northern Italy. There are 4 classes of rated notes: the Class A1, A2, and A3 notes, rated Aaa/AAA/AAA (Moody's/S&P/Fitch) thanks to subordination, and the Class B mezzanine notes, rated Aaa/AAA/AAA thanks to the EIF wrap.

3) Latest publications

16/07/2004: Half-year Summary Consolidated Non-audited Balance Sheet and Profit and Loss Account

Link: http://www.eif.org/Attachments/pub_corporate/eif_6-month_accounts.pdf

26/02/2004:EIF Staff Paper, "The Risk Profile of Venture Capital Funds-of-Funds"

The aim of this thesis is to analyse the risk profile of venture capital (VC) funds-of-funds. VC is generally associated with the investment in young, small, and fast growing companies in predominantly high-technology industries. Recent research has demonstrated that returns on VC investments are very volatile and investors have to bear a high level of risk. On the other hand, investors are compensated with high rates of returns to bear the risk inherent to investments in young high-technology companies. The VC industry is an opaque and illiquid market and data about risk and return of this asset class are relatively rare. Nonetheless, VC investments have seen large increases during the last years and achieved reputation within the segment of alternative investments. Link: http://www.eif.org/news/news.asp?news=62&years=-1&months=-1&categories=-1&page=2

4) How to subscribe - how to unsubscribe

- To subscribe to this free newsletter, please send an e-mail to info@eif.org with "subscribe" in the subject line.
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5) Contact

Should you have any comments or questions, please send an email to Patrice Liauzu (p.liauzu@eif.org).

Note that EIF does not invest in SMEs directly, but instead always works through financial intermediaries. The EIF is not involved in individual investment/credit decisions. SMEs in search of finance are requested to contact an EIF intermediary in their country/region - a list is published on EIF website - for information on eligibility criteria and application procedures.