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Contents
EBRD at a glance
The EBRD’s Small Business Initiative – an integrated approach to SME finance and development
Direct Financing for Small and Medium Enterprises – what can EBRD do for you
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What is the EBRD
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A multilateral development bank, established to promote transition to market economies
Operating in 35 countries from central Europe to central Asia
Owned by 65* countries and two inter-governmental institutions
Having a Capital base of €30 billion
Triple-A rated by the major rating agencies
In 2011, the Bank expanded its operations to Egypt, Morocco, Tunisia and Jordan (Southern and Eastern Mediterranean – SEMED region)
In 2014, the EBRD welcomed Cyprus and Libya as a recipient country and member respectively.
*Libya is yet to become a fully ratified member of the EBRD
EBRD at a glance Small Business Initiative Financing opportunities
The EBRD’s objectives
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Objectives:
• To promote transition to market economies by investing mainly in the private sector
• To mobilise significant foreign direct investment
• To support privatisation, restructuring and better municipal services to improve people’s lives
• To encourage environmentally sound and sustainable development
EBRD at a glance Small Business Initiative Financing opportunities
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ABI (reported rate)Number of operations (#)
EBRD’s objectives achieved through financing the private sector
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EBRD invested nearly €90 billion in more than 4,000 projects since 1991
Results in 2013:
€8.6 billion invested in 392 projects
Private sector accounted for 79% share
Debt 81%, Equity 14% & Guarantee 5%
Note: Unaudited as at 31 July 2014
EBRD at a glance Small Business Initiative Financing opportunities
EBRD: Shareholding Structure
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The EBRD has a triple-A rating from all three main rating agencies (S&P, Moody’s and Fitch)
Shareholding Structure
As at 13th July 2012(1) Includes European Community
and European Investment Bank (EIB) each at 3%. Among other EU countries: France, Germany, Italy, and the UK each holds 8.6%
(2) Russia at 4%
EU 27 Countries63% (1)
EBRD region excluding EU
7% (2)
Others11%
USA10%
Japan9%
EBRD at a glance Small Business Initiative Financing opportunities
Sector portfolio distribution
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Note: Unaudited as at 31 December 2013
Financial Institutions30%
Power and Energy16%
Transport14%Agribusiness
11%
Manufacturing and Services
11%
Natural Resources7%
Municipal & Env Inf7%
Equity Funds4%
Investments of the EBRD by sector
EBRD at a glance Small Business Initiative Financing opportunities
Geographic portfolio distribution
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Note: Unaudited as at 31 December 2013
Russia24%
South-eastern Europe
24%
Eastern Europe & Caucasus
19%
Central Europe & Baltics16%
Turkey8%
Central Asia7%
Southern & Eastern Mediterranean
2%
Investments of the EBRD by country / region
EBRD at a glance Small Business Initiative Financing opportunities
Key strengths of the EBRD
Operational
Extensive knowledge of local economy, business environment and practices, local presence
Engaged minority partner for business
A business partner who shares risks, including political
Catalyst to access additional equity, debt and trade finance
Provides finance to both private and public sector clients
High standards for corporate governance and compliance
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Institutional
Strong, internationally recognisedfinancial partner with long-term perspective
Close working relationships with governments and shareholders
Political leverage due to EBRD’s unique mandate and shareholder structure
Preferred Creditor Status
Triple-A credit rating
Close cooperation with market sources of capital to fill “market gaps”
EBRD at a glance Small Business Initiative Financing opportunities
Contents
EBRD at a glance
The EBRD’s Small Business Initiative – an integrated approach to SME finance and development
Direct Financing for Small and Medium Enterprises – what can EBRD do for you
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What is the Small Business Initiative?
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A strategic initiative of the EBRD – formally set up in 2014
Aimed at providing comprehensive support to small businesses (SME andmid caps), through:
Access to finance – directly or through intermediaries
Consultancy support – for implementation of various measuressupporting the corporate governance, acquisition of know how,investment in equipment, etc.
Policy dialogue with the local authorities – to improve the conditions fordoing business and creating a more favourable investment environment
Building upon the significant experience of the Bank in this sector
EBRD at a glance Small Business Initiative Financing opportunities
The 5 Pillars of the SBI
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PILLAR 1Indirect
financing
PILLAR 2Co-financing/
Risk-sharing
PILLAR 3Direct
financing
PILLAR 4Business
Advisory
PILLAR 5Policy
Dialogue
Financing of financial
intermediaries for on-lending
to MSMEs; investments in equity funds with focus on
SMEs
MSME credit lines;
Energy Efficiency credit
lines
Trade Facilitation
Equity Funds
Co-financing of or risk-sharing on SMEs with local partners, whether banks,
equity funds (for corporate)
MCFF; VCIP; various ad hoc
structures
Direct, tailor-made debt and
equity financing of SMEs with strong post-investment
value creation potential
Direct investments
Up to EUR 10 million
Various business advisory
activities in support of
MSMEs
SBS
Policy dialogue initiatives aimed
at improving SMEs’ business
environment and access to
finance
LTT; RO/OCE/VP
Policy activities
EBRD at a glance Small Business Initiative Financing opportunities
Contents
EBRD at a glance
The EBRD’s Small Business Initiative – an integrated approach to SME finance and development
Direct Financing for Small and Medium Enterprises – what can EBRD do for SMEs
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Eligibility for financing
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Geographic expansion of the Bank’s region of operations
A delegated facility for equity and quasi-equity investments, as well as tailor-made debt financing
Established jointly by the EBRD and the Italian Government in 2006
For investments in the Balkans (Albania, Bosnia & Herzegovina, Bulgaria, Croatia, FYR Macedonia, Kosovo, Montenegro, Romania, Serbia), Turkey, and the SEMED region (Egypt, Jordan, Morocco, Tunisia)
To meet the growing financing needs of dynamic local SMEs, not sufficiently supported by other financing sources
Eligible investments: expansion, restructuring or acquisitions of existing private businesses
Eligible sectors: a wide range of sectors, with a few exceptions (weapons, spirits, tobacco, gambling, etc.). All investments must be in line with sound environmental principles
Size of investments: individual investments range between EUR 1 million and EUR 10 million (larger amounts also available)
Time horizon: a period of 3 to 10 years (up to 15 years for project finance deals)
Target Stake (for equity): in the range of 20 to 35% of the capital of the company
EBRD at a glance Small Business Initiative Financing opportunities
What are the key objectives?
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Geographic expansion of the Bank’s region of operations
Enhancing competitiveness and product quality: strengthening ability to compete and improving the quality of goods and services
Innovation: introducing new, replicable products and technologies to achieve better use of labour, higher productivity and efficiency improvements
Setting standards for corporate governance: encouraging investee companies to apply higher standards
Improving energy efficiency and resource utilisation
EBRD at a glance Small Business Initiative Financing opportunities
Available Financing Instruments
Equity and quasi-equity
Common shares - minority position only (up to 35%)
Preferred shares
Mezzanine loans (with or without warrants)
Subordinated loans
Convertible loans
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Loans
Senior loans, including on project finance basis
Long-term (up to 10 years for corporate loans and up to 15 years for project finance)
Floating or fixed interest rates
Choice of currencies - €, US$, LCY (in some cases)
Market-based pricing
A full range of instruments, tailored to the needs of the company
EBRD at a glance Small Business Initiative Financing opportunities
Equity vs. Debt transactions
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Geographic expansion of the Bank’s region of operations
A delegated facility for equity and quasi-equity investments, as well as tailor-made debt financing
Established jointly by the EBRD and the Italian Government in 2006
For investments in the Balkans (Albania, Bosnia & Herzegovina, Bulgaria, Croatia, FYR Macedonia, Kosovo, Montenegro, Romania, Serbia), Turkey, and the SEMED region (Egypt, Jordan, Morocco, Tunisia)
To meet the growing financing needs of dynamic local SMEs, not sufficiently supported by other financing sources
In an equity deal EBRD contributes to the share capital of the company and becomes a partner of the owners. The consequences are as follows:
The owners of the Company and EBRD agree to develop the business together and bring the company to the next level (a growing, well organised and competitive company);
They share proportionally the benefits (profits, dividends) of the enlarged company, but also the associated risks;
The company does not need to pay any interest or provide collateral for the additional capital received from the EBRD, but needs to facilitate its exit;
In a debt deal the company receives a loan from the EBRD and is responsible for its repayment out of its revenues (or the agreed collateral).
EBRD at a glance Small Business Initiative Financing opportunities
Investment Process (1)
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Preliminary Discussions Screening Due Diligence
and Structuring
• Initial meetings and site visits.
• Discussions on mutual interest for cooperation.
• Entrepreneurs provide information about their company and the project.
• EBRD Bankers prepare a Concept Review Memorandum for approval by the Investment
Committee.
• EBRD and outside consultants conduct technical, environmental, legal and financial due diligence on the company and the project.
• Bankers and the entrepreneurs define and agree on the transaction structure and valuation/ pricing.
• Final Decision of the Investment Committee
Mandate Letter Term Sheet
Pre-investment phase
EBRD at a glance Small Business Initiative Financing opportunities
Investment Process (2)
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• Legal Agreements are drafted and executed.
• Subscription and disbursement take place.
• EBRD appoints a member of the Board of Directors (if agreed).
• EBRD could hire (if needed) consultants to assist the company in its project implementation.
• Company provides EBRD with regular updates on financial performance and project
progress.
• EBRD sells its stake in the Company in one of the following ways:
- trade sale;
- sale back to the entrepreneur;
- IPO;
- secondary buy-out;
- re-leveraging of the Company.
ExitInvestment Management and Monitoring
• Decision of the Investment Committee to exit its investment in the company (the timing is usually coordinated with the entrepreneur)
Post-investment phase (from 3 to 10 years)
EBRD at a glance Small Business Initiative Financing opportunities
Valuation Methodology (for equity)
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Geographic expansion of the Bank’s region of operations
A delegated facility for equity and quasi-equity investments, as well as tailor-made debt financing
Established jointly by the EBRD and the Italian Government in 2006
For investments in the Balkans (Albania, Bosnia & Herzegovina, Bulgaria, Croatia, FYR Macedonia, Kosovo, Montenegro, Romania, Serbia), Turkey, and the SEMED region (Egypt, Jordan, Morocco, Tunisia)
To meet the growing financing needs of dynamic local SMEs, not sufficiently supported by other financing sources
Valuation of the investee company depends on its sector and stage of development.
Usually, the valuation is based on (at least) one of the following three methodologies:
1. Valuation multiples for a sample of comparable companies (usually EV/EBITDA and EV/Sales multiples)
2. Discounted Cash Flow analysis based on projections for the future revenues, costs and profits of the company
3. Project Cost – for start-up companies with significant uncertainty about revenues and profits
Company value is calculated on the basis of the latest available financial statements, with possible (ex-post) adjustments in case of material differences between actual performance and projections.
EBRD at a glance Small Business Initiative Financing opportunities
Value Creation post-investment
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Geographic expansion of the Bank’s region of operations
A delegated facility for equity and quasi-equity investments, as well as tailor-made debt financing
Established jointly by the EBRD and the Italian Government in 2006
For investments in the Balkans (Albania, Bosnia & Herzegovina, Bulgaria, Croatia, FYR Macedonia, Kosovo, Montenegro, Romania, Serbia), Turkey, and the SEMED region (Egypt, Jordan, Morocco, Tunisia)
To meet the growing financing needs of dynamic local SMEs, not sufficiently supported by other financing sources
EBRD has strong commitment to improving the corporate governance of the companies it invests in and increasing their value. To do so, it:
Proposes an experienced industry expert/ banker to sit on the Board of Directors of the company (if agreed) in order to advise on strategic issues Hires suitable technical consultants (if necessary) to help the company in the
implementation of the project Encourages management to adopt rules and procedures for good corporate
governance and increased transparency (IFRS accounting, etc.) Encourages management to commit to a value creation plan to achieve
capital appreciation over timeAs a minority shareholder and a financial investor, EBRD does not interfere with the day-to-day management of the operations of the companies it invests in. Yet, it looks for shared corporate governance when it comes to strategic and major financial issues
EBRD at a glance Small Business Initiative Financing opportunities
Exit (1)
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Geographic expansion of the Bank’s region of operations
A delegated facility for equity and quasi-equity investments, as well as tailor-made debt financing
Established jointly by the EBRD and the Italian Government in 2006
For investments in the Balkans (Albania, Bosnia & Herzegovina, Bulgaria, Croatia, FYR Macedonia, Kosovo, Montenegro, Romania, Serbia), Turkey, and the SEMED region (Egypt, Jordan, Morocco, Tunisia)
To meet the growing financing needs of dynamic local SMEs, not sufficiently supported by other financing sources
When the company reaches maturity, EBRD will sell its stake, as its role in helping the company would have been achieved.
The exit method as well as the time of the exit should be agreed in advance with the majority owners.
Exit can be done in one of the following two ways:
Sale to a third party: commercial sale (to a strategic investor), IPO, secondary buy-out
Sale back to the original owner(s): through put and call option agreement or re-leveraging of the company
EBRD at a glance Small Business Initiative Financing opportunities
Exit (2)
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Geographic expansion of the Bank’s region of operations
A delegated facility for equity and quasi-equity investments, as well as tailor-made debt financing
Established jointly by the EBRD and the Italian Government in 2006
For investments in the Balkans (Albania, Bosnia & Herzegovina, Bulgaria, Croatia, FYR Macedonia, Kosovo, Montenegro, Romania, Serbia), Turkey, and the SEMED region (Egypt, Jordan, Morocco, Tunisia)
To meet the growing financing needs of dynamic local SMEs, not sufficiently supported by other financing sources
When the exit is done through a sale to a third party:
the other owners can decide to sell their stakes together with the EBRD (to maximize proceeds), but they are not required to do so and can retain control of the company
the valuation is determined after negotiations with the potential suitors
When the exit is done through a sale back to the original owners:
the valuation is usually based on the same methodology as at entry. In some instances also the same multiples’ values (as at entry) can be applied
EBRD at a glance Small Business Initiative Financing opportunities
Contacts
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For all further enquiries, please contact:
Nikolay AngelovPrincipal BankerSME Finance and DevelopmentTel: + 44 20 7338 7060Email: angelovn@ebrd.com
Pablo Gallego CuervoResearch AnalystBusiness DevelopmentTel: + 44 20 7338 6361Email: gallegop@ebrd.com
EBRD, One Exchange SquareLondon, EC2A 2JN United Kingdomwww.ebrd.com