EUROPEAN
INVESTMENT BANK
EVALUATION CRITERIA FOR MID-CAPS
AND LARGE CORPORATIONS
Dr. Harald Jahn
h.jahn@eib.org
Head of Division for Industry and
Commercial Services
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
FINANCING FOR RESEARCH AND DEVELOPMENT
FOCUSING IN THE PRIVATE SECTOR ON APPLIED
R&D PLUS INNOVATION (RDI)
EIB Categories:
 “Large” corporations = above 3000 employees, usually
rated companies
 MID-CAP = max 3000 employees, often non-rated
companies
 SME = max 250 employees, rarely rated
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
 Support LISBON objectives (Knowledge Based Economy)
 Support Barcelona objectives (3% of GDP for RDI)
 Themes for RDI projects
- similar to FP7 - Platforms
- support of EU policies (e.g. environment/energy)
 Private sector RDI
- priority will be given to the above themes, but not limited
to them
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
TOPICS
I.
DEFINITION & ELIGIBILITY ISSUES
II. CONFIDENTIALITY ISSUES
III. CONTEXT & LOCATION OF R&D ACTIVITIES
IV. PROJECT COMPLIANCE WITH EU STANDARDS
V.
CREDIT FINANCE CULTURE FOR R&D PROJECTS
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
I.
DEFINITION & ELIGIBILITY ISSUES
 Large corporations define RDI projects for budgeting purposes.
 Such RDI projects have to meet company specific selection
criteria (e.g. hurdles; strategic importance; ROE).
 A project definition is the basis for EIB financing.
 The definition of RDI projects increasingly requires up-stream
contact and involvement of company controllers in addition to
traditional finance, technical and legal departments.
 RDI financing widens eligible project costs to include not only
tangible but increasing intangible and RDI related personal
costs.
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
I.
DEFINITION & ELIGIBILITY ISSUES
 The RDI projects are evaluated by the EIB’s services similarly to
standard investments based on a cash-out flow (implementation)
and cash-in flow (operation) concept in order to define sector
and project specific loan duration and grace periods.
 Usually 3 years but up to 4 years of research costs
(implementation period) are considered for the definition of one
project.
 However, several RDI programme components can be selected,
identified and grouped into one project – mainly for easing the
financial contract and monitoring requirements. It is similarly
possible to finance one RDI programme comprising of several
smaller RDI projects.
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
WHAT INVESTMENTS EIB CAN
FINANCE:
Eligible project costs include:
• Facilities: project capital
expenditures for tangible assets;
• Activities : project capital
expenditures for intangible assets,
research staff cost, incremental
working capital needs and other
related operating expenses.
RDI budgets typically cumulated over
3 years (investment programme)
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
II. CONFIDENTIALITY
 Confidentiality can be of crucial importance for private sector
RDI investments.
 The EIB is a BANK, and is prepared to sign confidentiality
agreements with private sector promoters.
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
III. CONTEXT & LOCATION OF RDI ACTIVITIES
 The context for RDI projects to be financed by the EIB has to
comply with overall EIB standards, irrespective of size of
promoters. Excluded are sub-projects that:
a) Focus on weapons and ammunition, arms, military or police equipment or infrastructures,
and equipment or infrastructure limiting people’s individual rights and freedom;
b) Focus on gambling and related equipment;
c) Focus on tobacco manufacturing, processing, or distribution;
d) Involve live animals insofar as compliance with the "Council of Europe’s Convention for the
Protection of Vertebrate Animals used for Experimental and other Scientific Purposes"
cannot be guaranteed;
e) May potentially cause lasting environmental damage;
f) May potentially restrain or reduce human rights;
g) Are considered ethically or morally controversial (e.g. such as e.g. research on human
cloning);
h) Focus on processing or disposal of solid waste,
i)
Involve hazardous waste, incineration and composting, and interim storage of refuse;
j)
Merely involve the transfer of environmental problems from one location to another;
k) Real estate development activities on its own.
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
III. CONTEXT & LOCATION OF RDI ACTIVITIES
cont ….
 The EIB as a promotional bank is bound to finance RDI
projects according to mandates given.
 The majority of RDI financing has and will be, within the EU
Member States to support the Lisbon objectives for RDI
investments.
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
IV. PROJECT COMPLIANCE WITH EU STANDARDS
 EIB requires from all RDI promoters (independent of size) to
comply with EU and national standards, both for tangible and
intangible investments. The includes environmental, building
and operational requirements.
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
V.
CREDIT FINANCE CULTURE FOR R&D
Promoter Finance Model
Project Finance Model
• Financing partners provide funding to the
promoter on the basis of its financial
strength.
• In the Project Finance Model, the project is
realised and financed via a legally and
financially standalone project company.
• A promoter can be a company, a
consortium of companies or an institution
• The promoter(s) usually has the role of a
strategic partner (e.g shareholder).
• The financing partners are thereby
exposed to the credit risk of the
promoter, not of the project.
• The financing partners are thereby
exposed to the credit risk project only .
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
V.
CREDIT FINANCE CULTURE FOR R&D cont…
 For accountancy and tax purposes RDI expenditure is treated in
a heterogeneous manner within the EU.
 Activating and depreciating such investments according to
technical and economic life are often not possible, therefore RDI
costs can strongly effect company’s annual cash-flows.
 By providing long term credit-financing the EIB and its banking
partners have and are developing products to allow for better
cash-flow management concerning RDI spending and resulting
gains.
a)
Large corporations (rated companies) balancing cash-flow
throughout RDI lifetime.
b)
MID-CAPS (often non-rated companies) access to funding, culture
of defining RDI via controlling tools, and balancing cash-flow
throughout RDI life time.
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
V.
CREDIT FINANCE CULTURE FOR R&D cont…
 In the context additional internal & external (consultancy) knowhow is needed to define and justify RDI projects (feasibility
studies) in order to:
a)
allow long-term credit financing and
b)
develop RDI project risk ratings that might differ from the
company’s current (historically based) rating.
 For MID-CAPS – often non-rated companies – these efforts might
be higher.
 Research intensive companies will be evaluated within the
respective sector and value chain context and their given RDI
track record.
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
V.
CREDIT FINANCE CULTURE FOR R&D cont …
 Liberalisation increasingly requires from private sector
companies investing in applied RDI to remain competitive
(cost efficiency & innovation) both as individual niche suppliers
or within global supply chains.
 The EIB, in co-operation with its the banking partners, is
launching financing mechanisms:
a)
to provide access for projects up to EUR 50M via simplified
procedure for MID-CAPS and
b)
to develop together with the MID-CAP’s traditional banking
partners ways of rating RDI project and company risks, that
might be shared.
 These recent EIB initiatives are considered of importance to
support RDI efforts in existing companies with historic balance
sheet data, which, for one reason or another, are somehow
reducing the company’s RDI capacities to re-orientate business
focus or to expand activities.
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
EIB PRODUCTS FOR DIFFERENT TYPES OF COUNTERPARTS
Corporate /Project Finance
Risk Sharing with Banks
• Targeted beneficiaries: Mid-sized and large
corporations (low/sub-investment grade),
• Targeted beneficiaries: SMEs & MIDCAPS
(low/sub-investment grade)
• Product Ideas: Structured individual corporate loans for
RDI projects (senior/junior debt, mezzanine)
• Product Ideas: RSFF Facilities; Interest Contingent
Supplier Facility, Co-financing, Global Authorisations
• EIB value added: Lower Financing Cost, increase of
debt capacity (in case of subordination), project risk
sharing
• EIB value added: Banks: risk sharing, capital relief,
new customers/cross selling, Beneficiaries: risk
sharing, higher debt capacity, lower financing cost
NEW PRODUCT DEVELOPMENTS
• Targeted beneficiaries: Universities
• Product Idea: Royalty fund for scientific research
projects
• EIB value added: Facilitate financing for universities,
utilize royalty streams of research results (e.g. patents,
lower financing cost
Risk Sharing with Universities
• Targeted beneficiaries: JTIs, Technology Platforms,
EUREKA Joint Ventures,…
• Product Ideas: SPV based structures for individual
RDI consortia
• EIB value added: Provide structuring know-how
(Project Financing) and facilitate private sector funding
Financing Technology Platforms
EVALUATION CRITERIA FOR MID-CAPS AND LARGE CORPORATIONS
WHY EIB INVOLVEMENT ADDS VALUE?
Financial Value Added
Know-How
Attractive financing costs due to
AAA rating and non-profit status
Project Due Diligence: Strong
technical competencies
Flexible terms and conditions
(e.g. long repayment periods)
Know-how and track record in
financial structuring
Project/Promoter
Risk Sharing
Product Innovations
The EIB can share risks with
banks/promoters as appropriate
Dialoque with banks and industry
to develop suitable products