Mario Cucchi and Guido Borsani Funding regional projects through financial engineering in Lombardy,...

Mario Cucchi and Guido Borsani

Funding regional projectsthrough financial engineering in Lombardy, Italy

7th Monitoring Committee Meeting

Thessaloniki, 15th of July 2005

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Lombardy is the largest Italian Region and represents over 1/5 of the whole national economy

Context

History

Mission

Strategic Positioning

Activities

Tools

Examples

Population: 9.032.554 (15,6% of Italian population)

GDP: ≈ 250 billion € (20% of Italian economy)

Unemployment rate: < 4% (> 8% in Italy)

Rating:

•S&P: AA-

•Fitch: AA

•Moody’s: Aa1 (vs. Aa2 Italy)

Year Lombardy Italy % Lombardy

on Italy

GDP (million €) 2002 254,447.0 1,258,349.0 20,2%

Employees industrial companies (thousand)

2003 1,382 4,887 28,3%

Medium size companies

2003 4,738 16,633 28,5%

Industrial companies 2004 117,154 551,241 21,3%

Export (thousand €) 2002 74,827,542 264,494,941 28,3%

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Finlombarda’s History

1971

INCORPORATIONof FINLOMBARDA SpA

1999 2004

1998 2001INCORPORATIONof FINLOMBARDAGESTIONI SGR SpA

Context

History

Mission


Activities

Tools

Examples

TIME

REGION OF LOMBARDYOTHERS

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Finlombarda is aimed at supporting the economical, social and territorialdevelopment of the Region

Finlombarda is…

…a bridge between the public and private finance…a bridge between the public and private finance

…an institution that promotes and manages innovative financial products

…an institution that promotes and manages innovative financial products

…an institution that finance “excellence” for the competitiveness of Lombardy’s economy

…an institution that finance “excellence” for the competitiveness of Lombardy’s economy

Context

History

Mission


Activities

Tools

Examples

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Comparative analysis of the credit enhancementpositioning in PPP in Europe

Germany

Spain

Italy

The Netherlands

Ireland

France

Group 1

Group 2

United Kingdom

Group 3

Strong

Strong

Weak

Weak Relative importance of PFI and private tools&products

Relative importance of public financial players in public

interest financing

Areas of general interest missions (urban development, venture capital, local economic development)

Source: Advention 2002

U.S..A

U.S..A

FINLOMBARDAGESTIONIsocietà di gestione del risparmio


Context

History

Mission


Activities

Tools

Examples

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Areas of activity

PUBLIC FINANCEPUBLIC FINANCEPUBLIC FINANCEPUBLIC FINANCECORPORATE FINANCECORPORATE FINANCECORPORATE FINANCECORPORATE FINANCE

Credit facility for SME:Credit facility for SME: More than 20 tools set up More than 20 tools set up

Financial advisor for SMEFinancial advisor for SME

UE Programmes ManagementUE Programmes Management

Technological VouchersTechnological Vouchers

Credit facility for SME:Credit facility for SME: More than 20 tools set up More than 20 tools set up

Financial advisor for SMEFinancial advisor for SME

UE Programmes ManagementUE Programmes Management

Technological VouchersTechnological Vouchers

Closed-end Funds:Closed-end Funds: NEXT FundNEXT Fund EUROMED FundEUROMED Fund MEZZANINE FundMEZZANINE Fund

Closed-end Funds:Closed-end Funds: NEXT FundNEXT Fund EUROMED FundEUROMED Fund MEZZANINE FundMEZZANINE Fund

Structured finance for public Structured finance for public infrastructures:infrastructures: Public Utilities FundPublic Utilities Fund

Advisory services to PPP and Advisory services to PPP and PF projects:PF projects: PF Regional UnitPF Regional Unit PF FundPF Fund

Infrastructure Fund “Obj. 2”Infrastructure Fund “Obj. 2”

Structured finance for public Structured finance for public infrastructures:infrastructures: Public Utilities FundPublic Utilities Fund

Advisory services to PPP and Advisory services to PPP and PF projects:PF projects: PF Regional UnitPF Regional Unit PF FundPF Fund

Infrastructure Fund “Obj. 2”Infrastructure Fund “Obj. 2”

Closed-end Funds:Closed-end Funds: SOCIAL HOUSING FundSOCIAL HOUSING FundClosed-end Funds:Closed-end Funds: SOCIAL HOUSING FundSOCIAL HOUSING Fund



Context

History

Mission


Activities

Tools

Examples

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Three different tools to fulfilRegional economic policy expectations

MA

ND

AT

E

FUNDSRegion ofLombardy

Finlombarda SpA

VENTURE CAPITAL,MEZZANINE FINANCING

INVESTMENT FUNDSINVESTMENT FUNDSINVESTMENT FUNDSINVESTMENT FUNDS

REGIONALFUNDS

PRIVATE and THIRDPARTIES FUNDS

MANAGEMENT

FUNDS

Finlombarda Gestioni SGR

PUBLIC FUNDSPUBLIC FUNDSPUBLIC FUNDSPUBLIC FUNDS

REGIONALFUNDS

GRANTS &CREDIT

FACILITIES

CREDITFACILITIES

REVOLVING FUNDSREVOLVING FUNDSREVOLVING FUNDSREVOLVING FUNDS

REGIONALFUNDS


≈ € 300 Ml ≈ € 40 Ml ≈ € 100 Ml

Context

History

Mission


Activities

Tools

Examples

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Finlombarda Gestioni SGR has launched NEXT: a closed-end fund of funds aimed at developing a Venture Capital market in Lombardy

REGION OFLOMBARDY

guarantees

Context

History

Mission


Activities

Tools

Examples

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Finlombarda is setting up an innovative financial tool to subsidize Lombardy water and wastewater infrastructure projects

Finlombarda S.p.A.

REVOLVING FUNDREVOLVING FUNDREVOLVING FUNDREVOLVING FUND

REGIONAL FUNDS


SUBSIDIZED LOANS CREDIT ENHANCEMENT

FUNDINGGUARANTEEGUARANTEE

Region of Lombardy

BORROWERS

CAPITAL MARKETS

LOANS, BONDS,COMMERCIAL PAPERS

Context

History

Mission


Activities

Tools

Examples

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Public fund management

Corporate Finance

Advisory in Public-Private Partnership (PPP) and Project Finance (PF) Project Finance Regional Unit Project Finance Fund Public utilities Fund

InfrastructuralFundObjective 2

Public Finance

Regional Facilities to SMEs (20 typology of interventions)

Special facilities to cluster UE Programmes Technological Voucher

EU facilities to SMEs (Objective 2 areas )


NEXT Fund

Euromed Fund

Mezanine Fund

Social Housing Fund

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New financial tools for corporate finacing

Financing is effected with a mix of:

• Funds from the Regional Funds managed by Finlombarda, to be lent at favourable financial condition

• Funds from Banks, leasing and factoring companies, at negotiated financial condition (of spread and referring interest rate) having ongoing agreements with Finlombarda (more than fifty banks co-operate with Finlombarda).

A non traditional toll for the SMEs development financing

(revolving fund)

Transition from the grant culture to a financial culture

Region Lombardy has dropped any kind of financial support to SMEs development trough grants (except technological research)

This kind of intervention is costly, with a small leverage effect, with a limited impact in terms of commitment of private beneficiary and is completely unrelated to banking system

Regional and EU Facilities to SME

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New financial tools for corporate financing – the main standard conditions

Standard condition of co-financing

• percentage financing: from 50% up to 100% of eligible investment costs

• public funding: from 30% up to 70% of granted loan

• private banks funding: remaining from 70% to 30%

• duration: from 5 up to 20 years

• interest rate:

•Public funds from 0% up to 1% per year

•Banks rate = EURIBOR + 1 up to 1,5% per year

(beneficiary cost= weighted average of interest rate applied to funds)

• reimbursement: quarterly / half year instalments

Regional Facilities to SME


(revolving fund)

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New financial tool for Corporate FinancingAmount & leverage

RegionalFinancial tools for SME

AMOUNT OF FINANCIAL FUNDS AMOUNT OF FINANCIAL FUNDS MANAGED BY FINLOMBARDAMANAGED BY FINLOMBARDA

€ 210 M€Total amount of Regional Funds for SMEs financing managed by Finlombarda

out of which, about 70%, disbursed for a total amount of outstanding loans of approx 240 M€, financing investment for an amount of 500 €.

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Regional and EU Facilities to SME finacial efficiency for kind of contribution

-40,00

-30,00

-20,00

-10,00

0,00

10,00

20,00

30,00

40,00

Inte

nsita

' di

aiut

o in

%

Leva

cost

o di

cont

ribuz

ione

per

la P

.A. (

€pe

r 10

00 €

)kind of contribution

contributo conto interessi

fondo di rotazione

contributo capitale

Aid intensity

Leverage

Interest contribution

Revolving fund

grant

PA costs

New financial tools for corporate financing - financial efficiency

Figurative cost

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New financial tools for corporate finacing

condition of co-financing

• percentage financing: up to 100% of eligible investment costs

• EU funding: 50% of granted loan

• private banks funding: remaining 50%

• duration: up to 6 years

• interest rate:

• EU funds: interest free

•Banks rate = EURIBOR + 1 up to 1,5% per year

(beneficiary cost = approx 1% per year)

• reimbursement: quarterly / half year installments

EU Facilities to SME – SPD objective 2


(revolving fund)

Artisan enterp

rises

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New financial tool for the public sector

Financing of a total amount of € 421 Million is effected with fund provided under European Regional Development Fund programme with a mix of public funding:

Infrastructure Fund - objective 2 areas

209 million €from ERDF

146 million € by Italian Government

66 million €by Lombardy Region

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Priority 2 (territorial promotion)

• 2.1 development of infrastructure facilities to promote the competitiveness of local territory

• 2.2 foster infrastructure facilities to develop the tourist sector

• 2.4 development of information society

Specific Measures financed by the Infrastructure Revolving Fund

Priority 3 (environmental promotion)

• 3.1 promotion of sustainable use of protected areas

• 3.2 water cycle infrastructure development intervention

• 3.3 reclaim and recovery of polluted and deteriorated areas

• 3.4 promotion of environmental sustainable production and use of energy


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KEY ACTORS: Development strategy

PROJECTS’SELECTIONPROJECTS’SELECTION

FINANCIALDISBURSEMENT

FINANCIALDISBURSEMENT

PROJECTS’IMPLEMENTATION

PROJECTS’IMPLEMENTATION

LOANREIMBURSEMENT

LOANREIMBURSEMENT

Managing Authority

Fund’s Manager

Final Beneficiaries

Final Beneficiaries to the Fund Manager

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Finlombarda S.p.A. - New financial tool for the public sectorFinlombarda S.p.A. - New financial tool for the public sector


ACTIVITIES and TOOLSACTIVITIES and TOOLS

The total financial aid disbursed to final beneficiaries through the Infrastructural Revolving Fund is composed by both a GRANT (40% of the project’s cost) and an INTEREST FREE LOAN (60% of the project’s total cost) to be reimbursed over a 20 years period

FINANCIALAID

40%GRANTS

40%GRANTS

60%INTEREST FREE

LOANS

60%INTEREST FREE

LOANS

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RESULTSRESULTS

243 beneficiaries

600.000inhabitants

400applications

500million euro

Local public institutions which benefited from the Fund’s financial support from September to present

Population of the regional area eligible to financial support

Received by the MA during the call for projects

Total cost of infrastructure interventions financed by the Fund

+ multiplication effect

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CONCLUSIONSCONCLUSIONS

Compared to the traditional subsidy system, the Infrastructure

Revolving Fund presents UNIQUE characteristics:

INNOVATION: is the first and only case of financing public infrastructural interventions through a financial instrument in the framework of Structural Funds programs

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DIVERSIFICATION OF FINANCIAL RESOURCES:

replaces the traditional subsidy system (grants) with a financing mix composed by both a capital grant (40% of investment ‘s

cost), and an interest-free loan (60%) according with the recent European Community’s guidance

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MULTIPLIER EFFECT: doubles the number of financed projects thanks to a rotation rate

equal to almost 2 (at the end of the period the capital inflow generated by the reimbursement instalments would be roughly

equal to the initial total amount of the Fund)

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Mario Cucchi and Guido Borsani Funding regional projects through financial engineering in Lombardy,...

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