EUROPEAN INVESTMENT BANK
SB/04/15
26 October 2015
Document 06-2015
FOR DECISION
E U R O P E A N
F U N D
F O R
S T R A T E G I C
S T E E R I N G
I N V E S T M E N T S
B O A R D
EFSI Multiplier Methodology Calculation
Joint proposal by EC and EIB
Questions concerning this note should be referred to
EFSI Secretariat: tel: +352 4379 82130; e-mail: EFSISecretariat@eib.org
EFSI Multiplier Methodology Calculation – Meeting SB/04/2015
EFSI Multiplier Methodology Calculation
One of the Key Performance Indicators of EFSI will be the investment impact. The overall target
of investment mobilised through the EFSI is EUR 315bn to be delivered on the basis of an
overall EFSI contribution of the EU and the EIB of EUR 21bn. This represents a target global
multiplier effect of 15x. Based on current assumptions, this would be expected to result in EUR
61bn of new EIB/EIF financing (EIB: 49bn; EIF: 12bn), with reference to the baseline reference
scenario as indicated in the EIB Corporate Operational Plan 2015-20171.
While, the actual global multiplier for EFSI can only be measured on portfolio level at the end of
the investment period, it is expected that EIB estimates and monitors also transaction specific
multiplier factors on an ex-ante basis2.
In order to achieve this, it is proposed to establish clear rules and coherent assumptions for the
monitoring of the EFSI multiplier over time. The proposed EIB multiplier methodology will
provide a framework linking the underlying EFSI guarantee3 available with (a) the amount of EIB
financing and (b) the amount of total investment that is expected to be generated by such
financing.
The proposed methodology has also been discussed with the EIF (in view of its fund and
guarantee investments under the SME Window (SMEW)). While the main principles are
coherent, the EIF methodology, which is in line with EIF’s mandate of supporting SMEs in
general rather than financing projects as EIB does, is set out in a different document.
The multipliers referred to in this document will be established and their final outcome value
calculated in line with the processing of Key Performance Indicators and Key Monitoring
Indicators foreseen under Schedule II, section A, paragraph 3 of the EFSI Agreement.
1
http://www.eib.org/infocentre/publications/all/operational-plan-2015-2017.htm
Ex-ante estimation and monitoring by the EIB should not be interpreted as an exclusion criterion for
individual projects which do not meet the 15x global multiplier effect,
3
Under the EIB Infrastructure and Innovation Window, the EFSI guarantee takes the form of a First Loss
Piece (FLP) for the debt window and corresponds to the actual amount of EIB financing under the
equity/equity-type window.
2
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EFSI Multiplier Methodology Calculation – Meeting SB/04/2015
KEY ELEMENTS FOR DECISION
The EIB multiplier methodology is comprised of 2 independent factors as outlined below:
Global Multiplier (GM) = Internal Multiplier (IM) x External Multiplier (EM)
(A)
Relation between
Relation between
Relation between
EIB Loan / Equity amount
and
EFSI Contribution
Total Investment
and
EIB Loan / Equity amount
Total Investment
and
EFSI Contribution
IM = (EFSI Financing Volume) / (EFSI guarantee)
For Investment Loans4:
(B)
EM = (Project Investment Cost) / (EFSI Financing Volume)
For Intermediated Operations:
(C)
EM = (Catalytic Effect; CE) x EM*
(D)
EM* = (Project Investment Cost) / (Financing Amount from Intermediary)
(E)
CE = (Financing Amount from Intermediary) / (EFSI Financing Volume)
1.
Internal Multiplier (IM)
The IM represents the relationship between the EFSI guarantee and EIB’s financing. At portfolio
level, it can only be measured at the end of the investment period (signature by 30 June 2020).
The EFSI guarantee takes the form of a First Loss Piece (FLP) for the debt window and
corresponds to the actual amount of EIB financing under the equity/equity-type window.
Under the debt window, the FLP is expected to be 25% at the end of the investment period
enabling that every € of EFSI guarantee leads on average to 4€ of EIB financing. Therefore, the
ex-ante IM on project level is set at 4x for all debt operations.
Under the equity/equity-type window, the IM is set at 1x5.
2.
External Multiplier (EM)
4
For the purpose of this document, the category of Investment Loans includes also direct guarantees and
credit enhancement provided to investment projects.
5
While EFSI foresees a 50/50 risk sharing for any EIB investment in this category, the Bank’s contribution
to such financing is considered to be included in the EUR 21bn EFSI capital commitment.
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EFSI Multiplier Methodology Calculation – Meeting SB/04/2015
The EM captures the relationship between EFSI Financing Volume and Project Investment
Cost. To calculate it, two broad cases have to be differentiated, Investment Loans and Direct
Equity/Equity-Type Operations on the one hand and Intermediated Operations on the other.
2.1. External Multiplier (EM) – Investment loans and Direct Equity/Equity-Type
Formula (B)
EM = (Project Investment Cost) / (EFSI Financing Volume)
The EM relationship between EFSI Financing Volume and Project Investment Cost is illustrated
in the diagram below.
EFSI Financing Volume: In the case of EFSI (as well as in other EU/EIB schemes), the applied
figure for the Bank’s financing volume shall include only EFSI financing and not financing
tranches provided from other EIB financing schemes.
Project Investment Cost (PIC) is measured in the first instance as the total project cost defined
in the EIB loan agreement according to EIB normal methodology.
A baseline external multiplier is calculated by dividing the PIC by the EFSI financing volume as
specified in formula (B) above.
That baseline multiplier is subjected to an economic feasibility check by the Projects Directorate
of the EIB and, if warranted, it is adjusted following the principles below.
In general, the external multiplier varies across different financial products. Equity-type financing
is more effective in crowding in additional finance, followed by junior debt and senior debt. A
multiplier of 3 can be considered as a benchmark for senior debt, both based on past
experience of the EIB and on the observation that financing at least one-third of any project is
bound to be critical for the project to happen. Put differently, should the EIB not finance at least
that one-third of the project, its realisation would in all likelihood be questionable. Similar
reasoning applies to junior debt and equity-type, where the corresponding reasonable
benchmarks can be set at 5 and 15, respectively.
The table below summarises the benchmark external multipliers for the three product
categories. Should the calculation in formula (B) result in a multiplier value that is sufficiently
close to those shown, then that external multiplier value can be considered as economically
feasible. “Sufficiently close” is interpreted as not deviating by more than about one-third from the
benchmark.
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EFSI Multiplier Methodology Calculation – Meeting SB/04/2015
Direct
Financing:
Transaction
Type
Benchmark
External
Multiplier
Equity/Equit
y-Type
(direct)
Junior Debt/
Credit
Enhanceme
nt
Senior Debt
15
5
3
However, should the obtained benchmark external multiplier fall outside these ranges, a review
and possible adjustment by the Projects Directorate of the EIB is warranted.
If the external multiplier deviates from the respective range mentioned above but if the EIB
financing is associated with the entire project, the CA report should include a narrative
supporting the multiplier calculation. If the EIB/EFSI financing is associated with only one part of
the project then the investment cost should equal to that part of the project with which the
financing is associated, together with a supporting narrative in the Board report.
There are some other special circumstances where the Project Investment Cost needs to be
adjusted:
a. EU co-financing: If EU grant-financing, EU financial instruments or ESIF grants or financial
instruments (including related national public co-financing from Managing Authorities) are
used to co-finance the proposed project, this amount shall be deducted from the Project
Investment Cost for the calculation of EM.
b. More than one EIB/EFSI operation for one project: the PIC of the first operation should be
judged according to the methodology described above. Should there be subsequent EFSI
operations after the first one, their EM would be considered to be 0x. Only if a subsequent
operation will support new EFSI eligible investments not considered for the first operation
(e.g. in the case of an expansion) the EM for any subsequent operation would be calculated
as follows:
EM (subsequent EFSI financing) = (Additional PIC) / (subsequent EFSI financing amount)
c. Non-EFSI eligible components: Should a project include components that are not EFSIeligible (e.g. investments outside the EFSI Regulation scope), the EM will consider only the
EFSI-eligible part, as the EUR 315bn should only include EFSI-eligible investment.
d. Framework Loans (FL): In the case of FLs (one counterpart, multiple small projects to be
included in the future), it is not known at the time of approval/signature what exact PIC
amounts will be supported under the FL. In order not to overstate the EM, the EM would be
considered to be 3x.
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EFSI Multiplier Methodology Calculation – Meeting SB/04/2015
2.2. External Multiplier (EM) – Intermediated Operations
Formula (C)
EM = (Catalytic Effect; CE) x EM*
Formula (D)
EM* = (Project Investment Cost) / (Financing Amount from Intermediary)
Formula (E)
CE = (Financing amount from Intermediary) / (EFSI Financing Volume)
In intermediated operations, the EM as described above is enhanced through co-financing on
the level of the financial intermediary (e.g. investment fund, investment platform, bank, leasing
company). This additional factor is called the “Catalytic Effect” (CE), which is to be multiplied
with the EM on project level (EM*). The chart below provides an illustration of this relationship.
2.2.1. The Catalytic Effect (CE)
The CE is calculated in different ways depending on the type of intermediary (see also above for
the respective formulas):
a. Investment Fund/Platform: the notion of catalytic effect is captured by identifying the part of
the targeted size of the fund which would be available for investments6 and which would be
generated following the first closing in which EIB participates7 and that target EFSI related
investments based on its investment policies.
To calculate CE, this EFSI related part of the targeted size of the fund available for
investments would be divided by the proposed EIB/EFSI investment (i.e. share in the
fund/platform of the EIB investment with EFSI support; amount based on first closing in
which EIB participates) net of any other EU financing provided to the fund. The benchmark
for the CE is 5x; values above that will be explicitly justified. The benchmark for the total EM
for intermediated equity financing is 25x.
6
The targeted size of the fund available for investments would be net of fees covering fund management
costs and other costs associated to the establishment, operation and closing of the fund.
7
It is typically the case that an early EIB/EFSI participation will unlock significant investments from other
investors, thus being instrumental in facilitating the subsequent closings of a fund.
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EFSI Multiplier Methodology Calculation – Meeting SB/04/2015
This approach will represent the “expected CE” at the moment of the approval of the
EIB/EFSI investment. The expected CE will be updated, where needed, at the time of
signature of EIB/EFSI participation in the relevant closing(s) and at the fund's final closing.
The “realised CE” will be calculated at the end of the fund's investment period based on
actual investments made by the fund.
The diagram below provides an illustration of the calculation of the CE in case of an
investment fund operation.
Example: EIB invests EUR 30m under EFSI in a second closing (EUR 150m) in an infrastructure fund with a target
fund size or EUR 250m. According to investment policies, the fund invests 20% in projects outside the EU and 80%
inside the EU. Therefore, the targeted size of the Fund available for EFSI investment would be EUR 120m.
The fund normally provides ca. 50% of the equity in any infrastructure project (the typical equity ratio of the
targeted project is 20%).
Fund Level
Closing 1
Closing 2
EUR 150m
EFSI Inv.
30m
20% outside the
EU
EUR 100m
EUR 250m
CE = 120m / 30m = 4x
Project Level
PIC = 120m x 2 (=1/50%) * 5 (=1/20%) = EUR 1.2bn
EU Investment (eligible for EFSI)
EUR 1.2bn
EUR 1.5bn
EM* = 1200m / 120m = 10x
EM = CE x EM* = 10 x 4 = 40x
b. Bank (Loan for SMEs & Mid-Caps/Risk Sharing): In risk-sharing operations, CE is calculated
on the basis of the guarantee amount covered by the EIB (e.g. if the EIB guarantees up to
25% of the Financing amount from the Intermediary8, the CE is considered to be 4x). In
funding operations (e.g. Loans for SMEs), it is assumed that EIB provides 50% of the
Financing amount from the Intermediary (CE = 2x).
2.2.2. The Project Level External Multiplier (EM*)
In addition to the CE, intermediated operations also foresee a project level multiplier (EM*). This
additional factor is calculated in different ways depending on the type of intermediary:
a. Investment Fund/Platform: EM* is calculated by dividing (i) the total PIC (expected to be
eligible for EFSI) by (ii) the share of the targeted size of the fund available for investments
that is foreseen to support EFSI eligible projects. Past closings on fund level are not
considered for this calculation (see above).
In the case of corporate investments, EM* is calculated as follows:
EM* Equity: 1 / (Investment Fund’s assumption on the average share of equity in corporates’
8
In case of EIB operations supported through different risk sharing instruments or partners, an appropriate
methodology will be developed.
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EFSI Multiplier Methodology Calculation – Meeting SB/04/2015
total capital defined as equity + debt)
EM* Debt: 1 / (Investment Fund’s assumption on the average share of debt in corporates’
total capital defined as equity + debt)
b. Bank (Global Loan/Risk Sharing): In this case, EM* is calculated assuming that the
intermediary bank finances always 70% of the PIC. This is based on an average EU equity
ratio of SMEs and Mid-Caps of 30%. Hence, EM* in these type of operations is assumed to
be 1.4x (flat).
3.
Reporting
The EIB will also report on:
a. Annually aggregated multipliers for Financial Products (average, volume weighted). For
example, the list of Financial Products could include Investment Loans, Guarantees (and
Credit enhancing) Direct Equity/Equity-Type and Intermediated Operations (Investment
Fund/Platform and Bank Global Loans/Risk Sharing. This list is indicative and could be
adjusted as appropriate;
b. Annually aggregated multipliers for the different sectors (average, volume weighted) as
per Article 9.2 of the EFSI regulation within the Infrastructure and Innovation Window;
c. For each project, separately the amount of public and private finance mobilised as well
as the project-specific ex-ante global multiplier (when and as submitted to the
Investment Committee). These amounts will be annexed to the report prepared in the
context of the bi-annual operational report referred to in Schedule II, Section B,
paragraph 3 of the EFSI Agreement.
d. For each project, if EIB own risk financing is used to co-finance EFSI financed projects,
the EIB will also report a separate multiplier using the methodologies as described in
section 1 and 2, but also including an additional project cost adjustment as per section
2.1 for EIB own risk financing. This separate multiplier will be annexed to the report
prepared in the context of the bi-annual operational report referred to in Schedule II,
Section B, paragraph 3 of the EFSI Agreement. For the avoidance of doubt, for the
calculation of EFSI Key Performance/Monitoring Indicators, only the estimated ex-ante
Global Multiplier and the unadjusted PIC will be used as a basis for calculation
(Schedule II, Section A, paragraph 3 of the EFSI Agreement).
7