REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Interim Report on the participation of the European Union in the capital increase of the European Investment Fund and the pertinent increase of the European Investment Fund's support of actions in favour of enterprises, particularly small and medium sized enterprises pursuant to Article 4 of Decision No 562/2014/EU of the European Parliament and the Council of 15 May 2014 on the participation of the European Union in the capital increase of the European Investment Fund
Date: 2016-12-19
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: EU financing, European Investment Bank, European Investment Fund, aid to undertakings, capital increase, innovation, investment loan, small and medium-sized enterprises, venture capital

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 19.12.2016  COM(2016) 795 final   REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Interim Report   on the participation of the European Union in the capital increase of the European Investment Fund and the pertinent increase of the European Investment Fund's support of actions in favour of enterprises, particularly small and medium sized enterprises  pursuant to Article 4 of Decision No 562/2014/EU of the European Parliament and the Council of 15 May 2014 on the participation of the European Union in the capital increase of the European Investment Fund   
 
 
1.  INTRODUCTION 

As  required  by  Article  4  of  Decision  No  562/20141,  this  interim  report  assesses  how  the 
objective of increasing the support of the European Investment Fund (EIF) of actions which 
complement Member States' actions in favour of enterprises, particularly small and medium-
sized enterprises (SMEs), has been achieved between 2014 and 3rd quarter 2016. 

1.1 The EIF 

a) Capital structure 

The  EIF  was  established  in  19942  by  the  European  Investment  Bank  (EIB),  the  European 
Community,  now  the  European  Union  (EU),  represented  by  the  Commission,  and  several 
public  and  private  financial  institutions  with  an  authorised  capital  of  ECU  2  billion  (later 
converted to EUR at the rate of 1 to 1) split into 2,000 shares. Paid-in shareholder capital was 
fixed  at  20%.  The  Commission  subscribed  600  shares,  with  a  nominal  value  of  ECU  600 
million, of which ECU 120 million paid in. 

The  first  capital  increase  initiated  in  2007  brought  the  EIF’s  authorised  capital  to  EUR  3 
billion (1,000 new shares issued). The Commission subscribed 300 additional shares at a price 
set  annually,  based  on  a  formula  agreed  between  the  EIF's  shareholders.  The  dividends 
received  in  the  period  2007  to  2010  for  participation  in  the  EIF  covered  part  of  the 
subscription cost, with the remaining portion covered by the budget. It allowed the EU's 30% 
shareholding to be maintained. 

In 2014, the second capital increase brought the EIF’s capital to EUR 4.5 billion through the 
issuance of 1,500 new shares. The Commission is entitled to subscribe up to 450 additional 
shares between 2014 and 2017. A total amount of up to EUR 178 million was made available 
within  the  general  budget  of  the  EU.  The  decision  on  the  treatment  of  participation  in  the 
EIF's dividends was suspended until the next revision of the financial rules applicable to the 
general budget of the Union or, at the latest, in the context of this interim report3.  

At  the  time  of  this  report,  the  EIF’s  authorised  capital  equals  4,500  shares,  of  which  4,382 
issued.  The  EIB  holds  2,624  (59.9%),  the  Commission  (on  behalf  of  the  EU)  holds  1,232 
(28.1%), and 30 financial institutions together hold 526 (12.0%) of the issued shares. 

b) Governance 

The  EIF’s  statutes  and  rules  of  procedure  set the  framework  for  the establishment, role and 
procedures  of  its  decision-making  bodies4:  the  General  Meeting,  the  Board  of  Directors 
(Board), and the Chief Executive, under the control of the Audit Board. 

1  Decision  No  562/2014/EU  of  the  European  Parliament  and  of  the  Council  of  15  May  2014  on  the  participation  of  the 
European Union in the capital increase of the European Investment Fund, OJ L 156, 24.5.2014, p. 1. 
2  Council  Decision  94/375/EC  of  6  June  1994  on  Community  membership  of  the  European  Investment  Fund,  OJ  L  173, 
7.7.1994, p. 12. 
3  Statement  by  the  European  Parliament  and  the  Council  to  Decision  562/2014.  The  Commission  had  proposed  that  the 
dividends paid by the EIF in 2014-2017 would be used to cover part of the cost of the new shares, COM(2014)066 final. 
4 http://www.eif.org/who_we_are/governance/index.htm 

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c) Operational activities 

The EIF's mission is to support Europe's SMEs by helping them to gain access to finance. The 
EIF designs, develops and deploys venture and growth capital, guarantees and microfinance 
instruments  that  specifically  target  the  SME  and  mid-cap  market  segments,  seeking  to 
catalyse  further  investments  in  the  EU  and  increase  the  leverage  effect  of  EU  budgetary 
resources  and  Member  States'  contributions,  in  cooperation  with  the  relevant  Commission 
services.  The  EIF  fosters  EU  objectives  to  support  innovation,  research  and  development, 
entrepreneurship,  growth  and  employment  by  addressing  financial  products  to  financial 
intermediaries such as banks, guarantee, leasing and microfinance institutions, private equity 
and venture capital funds.  

The EIF is chiefly active in Member States, candidate and potential candidate countries, and 
in the European Free Trade Association countries. 

The EIF currently deploys more than 80 mandates on behalf of its mandators, notably the EIB 
and  the  Commission,  on  whose  behalf  (and  risk)  the  EIF  makes  equity  investments  and 
provides  guarantees.  The  EIB's  Risk  Capital  Resources  (RCR)  mandate  and  the  EIB  Group 
Risk  Enhancement  Mandate  (EREM)  are,  respectively,  the  EIF's  largest  equity  and  debt 
facilities. Using EU budgetary resources, the EIF deploys equity and debt instruments under 
the  COSME5,  InnovFin6,  Erasmus+7  and  EaSI8  facilities.  In  the  context  of  a  joint  European 
effort to revitalise the blocked credit channel to SMEs and in complementarity and synergies 
with  other  financial  instruments  available  to  SMEs  at  a  pan-European  level,  the  EIF  also 
deploys substantial mandates from Member States and authorities managing resources under 
the European Structural and Investment Funds (ESIF), funds of funds, corporates and private 
and public institutions and co-invests its own resources in equity and debt business activities. 

d) Capital requirements and expected level of creditworthiness  

The  EIF’s  business  lines  involve  different  risks,  reflected  by  a  certain  level  of  economic 
capital allocation that needs to be set aside. 

The EIF's commitments from own resources in the area of equity participations are currently 
limited by the EIF statutes at 50% of the EIF's own funds (without the fair value reserve). The 
ceiling  for  commitments  from  own  resources  under  guarantee  operations  is  three  times  the 
amount of subscribed capital. 

The  EIF's  risk  and  capital  management  has  helped  maintain  its  AAA-stable  credit  rating, 
recently  reconfirmed  by  the  larger  credit  rating  agencies.  The  breadth  of  the  EIF's  products 
and their geographical and sectorial scope underpin a moderate and sustainable risk exposure. 

5  Regulation  (EU)  No  1287/2013  of  the  European  Parliament  and  of  the  Council  of  11  December  2013  establishing  a 
Programme for the Competitiveness of Enterprises and small and medium-sized enterprises (COSME) (2014 - 2020), OJ L 
347, 20.12.2013, p. 3. 
6 InnovFin - EU Finance for Innovators - is a joint initiative by the EIB and the EU under Regulation (EU) No 1291/2013 of 
the European Parliament and of the Council of 11 December 2013 establishing Horizon 2020 - the Framework Programme 
for Research and Innovation (2014-2020), OJ L 347, 20.12.2013, p. 104. 
7  Regulation  (EU)  No  1288/2013  of  the  European  Parliament  and  of  the  Council  of  11  December  2013  establishing 
'Erasmus+': the Union programme for education, training, youth and sport, OJ L 347, 20.12.2013, p. 50. 
8 Regulation (EU) No 1296/2013 of the European Parliament and of the Council of 11 December 2013 on a European Union 
Programme for Employment and Social Innovation (EaSI), OJ L 347, 20.12.2013, p. 238. 

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1.2 Overview of the capital increase 

a) Main objectives 

The main objectives of the capital increase were to: 

Develop  the  SME  loan  capital  markets  with  the  aim  of  diversifying  the  source  of 

• 
liquidity for SME banks and leasing companies; 

Improve  SMEs'  access  to  finance  by  responding  to  the  European  Council  request  to 

• 
increase the unique credit enhancement capacity of the EIF; 

Support  the  growth  of  the  EIF  as  a  cornerstone  investor  in  the  venture  and  growth 

• 
capital market; 

Enhance  the  EIF's  role  in  microfinance  and  social  impact  investment,  enabling 

• 
breakthrough equity participations in new social enterprises and financial institutions; 

• 

Enable risk-sharing in the EIF mandates through co-investment; 

Support  the  EIF's  AAA  rating  by  injecting  new  capital  and  by  demonstrating  its 

• 
increased policy importance. 

b) Approval procedures 

Upon the Board's endorsement of the capital increase and related modalities on 14 April 2014, 
it was approved by the General Meeting on 27 May 2014. The General Meeting also approved 
the arrangements  for the issuance and subscription of new  shares,  including  the payment of 
the share price, on the same date. 

c) Shareholders' subscriptions 

According  to  Decision  No  562/2014,  the  EU  can  subscribe  up  to  450  new  shares  over  the 
2014-2017  period,  backed  by  up  to  EUR  178  million  total  budgetary  appropriations.  The 
Commission  has  subscribed  a  total  of  332  shares  at  a  total  cost  of  EUR  133,479,829.08 
(average price per share of EUR 402,047.68). 

The  EIB  fully  subscribed  its  entitlement  of  923  shares.  15  financial  institutions  fully 
subscribed their respective capital increase entitlements and another 4 subscribed more than 
50% of their entitlement, for a total of 193 new shares. 

d) Steps for the finalisation of the capital increase until 2017 

118 new shares remain authorised but unissued, all reserved by the Commission. EUR 44.5 
million of budgetary resources remain from the initial total of up to EUR 178 million made 

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available  for  EU  shares.  The  EIF  has  provisionally  calculated  the  sale  and  purchase  share 
price in 2017 at approximately EUR 436,0009. 

The remaining budget thus allows the EU to subscribe another 102 shares at that share price. 
It will result in the EU having subscribed 434 new shares, instead of 450, due to a higher than 
foreseen increase in the price per share over the period. It would therefore own 1,334 shares 
(29.6%  of  the  authorised  capital)  at  the  end  of  the  capital  increase  exercise.  The  EU's 
participation will thus be diluted compared to its previous 30% share. 

2.  

EIF 2014-2016 ACHIEVEMENTS UNDERPINNED BY THE CAPITAL INCREASE 

2.1 Overview as at the third quarter of 2016 

By 30 September 2016, the EIF had increased its volume of activity by 40% on average per 
year10 compared to 2013. The EIF entered into 607 transactions for an investment volume of 
EUR  16.9  billion.  Out  of  them,  370  transactions  relied  on  the  EIF's  capital  base.  They 
mobilised EUR 5.8 billion of the EIF's own resources, of which more than EUR 4 billion were 
invested alongside mandate resources managed by the EIF. 

The  resulting  strong  capitalisation  was  a  determining  factor  for  the  EIF’s  successful 
deployment  of  the  European  Fund  for  Strategic  Investments  (EFSI)11.  It  allowed  the  EIF  to 
pre-finance the first transactions and deploy at an increased pace the InnovFin (where the EIF 
takes  the  senior  tranche)  and  equity  investments  under  its  EFSI-specific  RCR  mandate 
resources (where the EIF co-invests systematically 5%). 

In  parallel,  the  EIF  further  strengthened  its  links  with  its  existing  shareholders  through  the 
latter's  increase  in  their  holdings  and  the  addition  of  important  actors  in  European  SME 
financing as new shareholders. 

2.2 Equity (venture and growth capital) 

The additional risk-taking capacity resulting from the capital increase has notably allowed the 
EIF to expand significantly the outreach of its equity investments, both in terms of volumes 
invested and speed of deployment. 

a) New EFSI/RCR operations underpinned by increased capital 

The  RCR  enabled  the  EIF  to  pursue  its  equity  strategy  in  the  venture  capital  and  growth 
segments  for  over  15  years  and  allowed  increased  investments  through  hybrid  debt/equity 
financing. The EIF co-invests its own resources alongside mandate resources. 

In July 2015, the EIB increased the RCR equity resources by EUR 2.5 billion (reaching EUR 
9.5  billion)  under  the  EFSI  SME  window  for  private  equity  and  technology  transfer 
investments  in  SMEs  and  mid-caps.  At  the  end  of  2015,  EFSI-specific  commitments 

9 Based on 3rd quarter, non-audited accounts. 
10 CAGR (Compounded Annual Growth Rate) based on 2016 year end forecast volume. 
11 Regulation (EU) 2015/1017 of the European Parliament and of the Council of 25 June 2015 on the the European Fund for 
Strategic  Investments  the  European  Investment  Advisory  Hub  and  the  European  Investment  Project  Portal,  OJ  L  169, 
1.7.2015, p. 1. 

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amounted to EUR 1.4 billion in 45 funds. The resulting financing reached EUR 14.6 billion (a 
leverage ratio of nearly 1:11). 

2015 marked the first full operational year of the Mezzanine Co-Investment Facility (MCIF) 
within the RCR mandate. That EUR 100 million hybrid debt-equity facility enabled the EIF to 
co-invest in target companies alongside mezzanine funds. By September 2016, commitments 
under MCIF totalled EUR 72 million (of which EUR 4 million of the EIF's own resources), 
promoting  a  broader  utilisation  of  co-investment  solutions  and  addressing  clearly  identified 
fundraising shortfalls. 

In the period January 2014 - September 2016, the EIF committed EUR 5.0 billion under the 
RCR, including EUR 250 million of its own resources. 

b) EIF risk-sharing under EU mandates - the single EU equity financial instrument 

The Single EU Equity Financial Instrument includes the COSME Equity Facility for Growth 
(COSME EFG) and the Horizon 2020 InnovFin SME Venture Capital instrument (InnovFin 
Equity), which also covers a pilot initiative for business angels. In both cases, EU budgetary 
resources are deployed alongside the EIF's own resources. 

COSME EFG enables the EIF to invest in funds that provide equity and mezzanine finance to 
expansion  and  growth-stage  SMEs  with  high  growth  potential,  particularly  those  SMEs 
operating  across  borders.  By  September  2016,  nine  investments  under  the  EFG  facility  had 
been  signed,  resulting  in  EUR  107  million  of  aggregate  commitments,  of  which  EUR  5 
million from the EIF's own resources. 

Through InnovFin Equity, the EIF targets investments in technology transfer, business angels, 
venture capital funds and fund-of-funds that provide equity for early stage companies in pre-
seed, seed and start-up phases that may not yet have generated revenues from the sale of their 
products.  It  mobilises  more  than  EUR  1.7  billion  for  enterprises  in  Member  States  and 
countries associated with the Horizon 2020 programme. The EIF committed a total amount of 
EUR  130  million  to  seven  equity  funds,  including  EUR  26.5  million  of  the  EIF's  own 
resources. 

Following the set-up of a new equity product under the EFSI, a structured financial product 
under  the  EFSI  was  created,  combining  the  EU’s  InnovFin  Equity  with  a  EUR  270  million 
commitment  benefitting  from  the  EFSI  EU  Guarantee  and  a  EUR  290  million  commitment 
under the EIF's own resources. 

c) Development of social impact investment: Social Impact Accelerator (SIA) 

SIA  is  an  EIF  initiative  launched  in  2013  as  part  of  the  EIB  Group’s  impact  investment 
strategy, responding to the wider EU policy aim of establishing a sustainable funding market 
for social entrepreneurship in Europe. SIA is a fund-of-funds that seeks to create a portfolio of 
equity  investments  in  social  impact  funds.  It  promotes  social  inclusion,  provides  alternative 
sources of employment for marginalised social groups and contributes to growth. 

Throughout  2014  and  2015,  the  EIF  continued  to  build  a  strong  and  well-diversified  SIA 
pipeline  across  Europe,  ensuring  the  availability  of  a  broad  range  of  financing  options, 
including debt or hybrid debt/equity instruments. 

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SIA  benefits  from  financing  under  the  EREM  Social  Impact  Finance  Instrument,  an  EIB 
mandate (EUR 189 million). Total commitments to SIA reached EUR 243 million at its final 
closure in July 2015, through additional investments from the Bulgarian Development Bank, 
the Finnish innovation fund Sitra, and EUR 11.5 million of the EIF's own resources. 

d) Regional outreach 

The EIF has  expanded its regional equity outreach initiated in  2006, currently managing  12 
regional funds-of-funds, aggregating commitments of EUR 3.7 billion at fund-of-fund level. 
In  2016,  EIF  and  its  regional  partners  set  up  three  funds-of-funds,  mainly  targeting  Estonia 
(EUR  60  million),  Sweden  (SEK  582  million  -  approx.  EUR  60.5  million)  and  the 
Netherlands  (EUR  200  million),  including  from  ESIF  and/or  EFSI  resources.  The  EIF  also 
invests  its  own  resources  alongside  mandators’  funds  under  other  regional  funds-of-funds 
through the EIF’s co-investment under the RCR mandate, which partly funds these initiatives. 

The EIF also expanded its activities under the European Angels Fund (EAF) initiative. Under 
the  EAF,  the  EIF  provides  equity  to  business  angels  and  other  non-institutional  investors, 
increasing  their  investment  capacity  by  co-investing  in  innovative  companies  in  the  seed, 
early  or  growth  stage.  The  EAF  now  covers  Austria,  Germany,  Ireland,  the  Netherlands, 
Spain and Denmark, a significant expansion since its 2012 launch. At the end of September 
2016, the EAF initiative had a volume of EUR 265 million, of which at least EUR 8 million to 
be committed under the EIF's own resources. 

2.3.  Debt (guarantees, securitisation and microfinance) 

Alongside  new  mandates  deployed  in  2014-2016  relying  exclusively  on  the  mobilisation  of 
mandators’ resources, an important number of debt-focused mandates were launched with EIF 
co-investments  and/or  risk-sharing.  In  addition,  the  EIF  has  boosted  its  own-risk  activity  in 
credit enhancement operations. 

a) EIB risk enhancement mandate 

The EREM was signed between the EIB and the EIF in March 2014 to support the impaired 
financing of European businesses through additional guarantees, debt and equity instruments. 
A total of up to EUR 6 billion is earmarked, of which EUR 4 billion from the EIB and up to 
EUR 2 billion from the EIF. 

The  EREM's  products/windows  reinforce  existing  activities  or  strengthen  alternative 
financing tools to respond to concrete new market needs: 

ABS Credit Enhancement (EREM ABS CE) supports by up to EUR 1.95 billion an 
• 
increased capacity in mezzanine tranches of asset-backed securitisations, freeing up resources 
for originators to lend to SMEs and small mid-caps; 

• 
EREM Cooperative Banks & Smaller Institutions broadens the EIB Group's range 
of  intermediaries,  in  particular  small  cooperative  banks  and  other  smaller  institutions 
particularly  focused  on  smaller  SMEs  and  start-ups.  In  turn,  originators  are  expected  to  use 
the freed up resources to increase lending to SMEs; 

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Loan Funds – a new segment that the EIF tapped into to widen the availability of loan 
• 
financing for SMEs and small mid-caps beyond traditional bank channels. The strong pipeline 
led to an increase of the available resources to EUR 725 million in January 2016. 

• 

EREM-SME Initiative 

The  EREM  requires  the  EIF  to  participate  with  its  own  resources  alongside  the  financing 
made  available  by  the  EIB.  Up  to  EUR  333  million  of  the  EIF's  own  resources  have  been 
mobilised in 42 transactions so far, for an aggregate invested volume of EUR 1.2 billion. 

b) EIF capital contributions to EU budgetary instruments 

i) InnovFin SME Guarantee Facility (SMEG) 

Since  2014,  the  EIF  had  offered  uncapped  guarantees  or  counter-guarantees  to  financial 
intermediaries,  allowing  them  to  provide  debt  financing  on  favourable  terms  to  innovative 
SMEs and small mid-caps in Member States and Associated Countries12. 

EUR 1.1 billion from the EU budget and up to EUR 4.0 billion of EIF exposure are expected 
to make approximately EUR 10 billion of debt finance available for innovative companies and 
catalyse around EUR 14 billion in investments. The EIF concluded 88 guarantee transactions, 
totalling  EUR  3.8  billion,  of  which  68  transactions  were  backed  by  the  EFSI  for  EUR  3.0 
billion in total signatures. 

Since  January  2015,  the  SMEG  facility  has  benefitted  from  a  significant  acceleration  in 
deployment through the support offered by the EFSI. 

ii) European Fund for Strategic Investments 

The EFSI was jointly launched by the EIB Group and the EU to help overcome the current 
investment  gap  in  the  EU  by  mobilising  private  financing  for  strategic  investments.  It  is 
backed by a EUR 16 billion guarantee from the EU budget and a EUR 5 billion allocation of 
the EIB’s own capital. 

The EIF implements the EFSI's SME Window, providing EUR 5.5 billion13 of guarantees and 
equity  investments.  An  investment  volume  in  SMEs  and  mid-caps  of  EUR  82.5  billion  is 
expected  to  be  triggered  by  the  summer  of  2018  (leverage  of  15x).  Current  implementation 
supports  that  initial  estimate  and  also  indicates  the  reaching  of  targets  well  ahead  of 
schedule14. 

The EIF drew on its own resources to advance the deployment of EFSI products, ahead of the 
formal approval of the EFSI legislation, mobilising up to EUR 500 million of its own funds as 
pre-financing until the EFSI structure became fully operational. 

12 http://ec.europa.eu/research/participants/data/ref/h2020/grants_manual/hi/3cpart/h2020-hi-list-ac_en.pdf 
13 Following an increase of EUR 500 million, transferred from the EFSI Infrastructure and Innovation Window, decided by 
the EFSI Steering Board. 
14  As  at  November  2016,  more  than  80%  of  the  EUR  82.5  billion  target  is  expected  to  be  reached,  based  on  current 
signatures. 

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c) EIF support to the SME initiative 

The  SME  Initiative  of  the  Commission  and  the  EIB  group  stimulates  SME  financing  by 
providing partial risk cover for SME loan portfolios of originating financial institutions. ESIF 
provide the major part of EU funds which include a contribution from EU level instruments 
(COSME and/or Horizon 2020), with co-funding from EIB and EIF own resources. 

The  EIF  offers  selected financial  intermediaries an  uncapped  portfolio guarantee  instrument 
or a securitisation instrument. That loss protection and potential capital relief allows financial 
intermediaries to provide SME loans, leasing and/or guarantees at favourable terms. 

It  currently  covers  Spain,  Bulgaria,  Finland,  Malta,  Italy  and  Romania,  with  plans  for 
expansion to other Member States. Approximately EUR 1 billion of ESIF resources have been 
entrusted to the EIF so far, coupled with an expected commitment of up to EUR 1.8 billion 
from the EIB and EUR 150 million from the EIF's own resources. 

d) Increased EIF own resource SME securitisation activities 

By  facilitating  securitisation  transactions  through  credit  enhancement,  the  EIF  provides 
guarantees  to  financial  institutions,  thus  diversifying  their  funding  sources  and  achieving 
economic  and  regulatory  capital  relief  through  credit  risk  transfer,  enhancing  the  ability  of 
banks to lend to SMEs.  

Since  2014,  the  EIF's  efforts  to  help  the  revival  of  high  quality  SME  securitisation  have 
resulted  in  EUR  2.8  billion  of  signed  guarantees.  Geographical  coverage  has  significantly 
expanded to 12 countries. The leveraged volume of additional SME lending undertaken by the 
originators  is  estimated  to  reach  EUR  9.6  billion.  In  total,  the  EIF’s  SME  securitisation 
activity has mobilised more than EUR 2.2 billion of EIF own resources in the same period. 

The EIF's EREM ABS CE also supported mezzanine tranches of SME/small mid-caps based 
securitisation  transactions,  including  both  synthetic  and  true  sale  transactions.  The  EIF  also 
used EUR 105 million of its own resources to purchase more senior tranches under a newly 
set-up product of direct investments in SME asset-backed securitisations. 

2.4 

Shareholders 

The  EIF  reinforced  its  public-private  shareholding  structure  through  the  participation  of  the 
financial  institutions  in  the  2014  capital  increase.  Following  its  efforts  to  broaden  the 
shareholder  base,  six  further  financial  institutions  from  Spain,  Italy,  Slovenia,  France  and 
Turkey joined, therefore resulting in the current total of 30 shareholding financial institutions.  

Moreover,  on  10  October  2016,  the  General  Meeting  approved  the  admission  of  a  new 
member,  the  Czech-Moravian  Guarantee  and  Development  Bank  CMZR.  Any  potential 
further  broadening  of  the  circle  of  financial  institution  shareholders  will  be  based  on 
expanding the geographical coverage and the latter's focus on supporting European SMEs.  

Cooperation  with  financial  institutions  was  further  strengthened  by  the  EIF  through  the 
creation of the Corporate Relations division in 2015. 

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2.5   Creditworthiness 

Larger  rating  agencies  have  consistently  affirmed  the  EIF’s  AAA-credit  rating  and 
emphasised the EIF's strong capitalisation, notably highlighting the 2014 capital increase. 

3. 

KEY EIF ACTIVITY LOOKING FORWARD 

3.1 

Additional future activities 

The EIF continually tries to cover identified market gaps in the financing of European SMEs 
and mid-caps, including by mobilising its own resources alongside mandate resources, such as 
ESIF. 

a) EFSI SMEW equity product 

In  July  2016  the  EIF,  the  EIB  and  the  Commission  launched  a  product  dedicated  to  equity 
investments in the EU, whose overall investment capacity of EUR 2,068 million targets equity 
investments  across  a  wide  spectrum  of  financing  needs  and  delivery  modalities  (co-
investments,  technology  transfer,  funds-of-funds,  social  impact,  etc.).  The  SMEW  Equity 
Product  has  two  sub-windows,  with  the  EIF  investing  up  to  EUR  340  million  of  its  own 
resources into growth/expansion (sub-window 1) and early stage investments (sub-window 2). 

A  collaborative  platform  for  national  promotional  banks  and  institutions  enables  them  to 
match the total budget for investment under the EFSI SME Equity Product on a 1:1 basis. 

b) Additional Debt Activities 

i) Further EFSI Support to InnovFin SMEG  

A new guarantee facility under InnovFin SMEG, covering mezzanine loans, is under design. 
EIF resources of up to EUR 300 million will be combined with the EFSI so as to cover a total 
loan volume of up to EUR 2 billion over the period 2017-2020. 

ii) Funded instruments for microfinance (EaSI) 

Under  Regulation  (EU)  No  1296/2013,  the  Commission  and  the  EIB  Group  plan  to 
supplement the guarantee mandate with a facility for offering senior and subordinated loans to 
microfinance  and  social  entrepreneurship  institutions  that  will  in  turn  extend  financing  to 
micro-enterprises and social enterprises. The EIF's own resources of up to EUR 28.5 million 
(including from the EREM mandate) are to be mobilised alongside  EIB and EaSI resources 
for an expected aggregate volume of EUR 200 million. 

iii) Additional SME securitisation activities 

Following  the  successful  pioneering  of  the  EIF’s  direct  investment  in  SME-focused 
securitisations,  the  EIF  is  currently  reflecting  on  increasing  its  presence  in  that  market 
segment with potentially EUR 300 million of the EIF's own resources over three years. 

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c) Increase of EFSI (EFSI 2.0) 

In September 2016, the Commission proposed an increase in the overall investment capacity 
of  the  EFSI15  (total  catalysed  investment  to  increase  from  EUR  315  billion  to  EUR  500 
billion),  together  with  an  extension  of  its  investment  period  until  2020.  Moreover,  the 
Commission has proposed to increase the EFSI guarantee by EUR 10 billion up to a total of 
EUR 26 billion. Drawing on the very successful start in the implementation of the EFSI, in 
particular the SME window implemented by the EIF, the new proposal entails an increase of 
the SME window of  EUR 5 billion made  available for investments for  SMEs and mid-caps 
through the EIF. It will result in significant additional EIF own resources mobilised alongside 
EFSI between 2018 and 2020. 

3.2 

Impact on the EIF’s capital consumption 

a) Capital consumption 

i) Equity 

The EIF's own resources commitments in the area of equity participations are capped at the 
ceiling mentioned in section 1.1.d). It translates into an amount of EUR 891 million available 
for equity participations as of September 2016. The overall private equity net commitments of 
EUR 659 million utilised 74% of the ceiling. 

ii) Guarantees 

As of the end of September 2013, the EIF's exposure from own risk guarantee operations was 
EUR  2.9  billion,  resulting  in  a  EUR  6.1  billion  headroom  for  such  transactions.  The 
significantly  increased  guarantee  business  volume  between  2014  and  the  end  of  September 
2016 doubled the EIF's exposure to EUR 5.8 billion against the ceiling of EUR 12.9 billion. 

iii) Completion of the 2014 capital increase 

The 2014 capital increase should be completed in 2017 through a final auxiliary subscription 
period  for  the  remaining  authorised  EIF  shares  reserved  by  the  EU.  The  par  value  will  be 
confirmed  immediately  after  the  EIF's  2017  Annual  General  Meeting  in  the  first  half  of 
201716.  The  EU's  subscription  of  its  remaining  shares  will  increase  the  relevant  headroom 
available  for  additional  EIF  operations,  which  will  underpin  the  further  deployment  of  the 
EIF’s investments set out in section 3.1. 

b) Optimisation of capital use  

The EIF is actively working to manage sustainably its capital to accommodate a steady rate of 
growth expected for its activities. Different measures are envisaged to reduce consumption of 
the  EIF’s  capital,  including  a  more  active  portfolio  management,  in  particular  in  the  equity 
area. 

15 COM(2016)597 final, 2016/0276(COD) 
16  The  share  price  is  calculated  using  the  Replacement  Share  Purchase  Undertaking  and  based  on  the  report  issued  by  the 
EIF's external auditors following the Annual General Meeting's approval of the financial statements and the attribution of net 
income. 

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4. 

CONCLUSION 

Although not yet completely finalised, in particular due to the EU's pending decision on the 
118  remaining  shares,  the  capital  increase  has  already  led  to  increased  financing  made 
available  to  SMEs  and  mid-caps.  The  capital  increase  also  created  additional  risk-taking 
capacity, allowing a higher volume and speed of deployment of equity investment into SMEs, 
whereby the EIF's capital was significantly leveraged. The increase equally boosted the EIF's 
own-risk  activity  in  credit  enhancement  operations,  in  particular  for  guarantees  and 
securitisation, thus mobilising private financing and increasing access to finance for SMEs. 

However,  the  budget  made  available  will  probably  not  be  sufficient  to  subscribe  fully  the 
remaining  118  shares  reserved  for  the  EU.  It  will  lead  to  a  slight  dilution  of  the  EU 
shareholding. That result is mainly due to (i) a higher than foreseen increase in the price per 
share over the period17, and (ii) the decision not to use the dividends the EU received so far 
from the EIF to purchase additional shares, as was the case for the 2007 capital increase. The 
dilution will not have an immediate impact on the EU's statutory shareholder rights but will 
result  in  a  corresponding  slight  decrease  in  its  share  of  future  dividends.The  results  so  far 
indicate that subscribing to the remaining reserved shares will enable the EIF's SME and mid-
cap  activities  to  be  further  increased.  The  ceilings  set  in  the  EIF  statutes  and  the  need  to 
ensure  its  AAA-stable  credit  rating18  limits  the  scope  for  those  additional  activities.  The 
current  headroom  under  the  ceilings  allows  the  EIF  to  sustain  additional  activities  over  the 
coming years and it is too early to predict its capital needs post-2018. A further mobilisation 
of EIF's own resources under EFSI 2.0, once adopted, is however to be expected. At the same 
time, the EFSI guarantee will enable the EIF to achieve even more significant leverage on its 
capital.  

17  The  higher  than  foreseen  increase  in  the  price  per  EIF  share  is  mainly  due  to  better  than  originally  projected  financial 
performance of the EIF. 
18  In  line  with  Regulation  (EU)  No  462/2013  of  the  European  Parliament  and  the  Council  of  21  May  2013  amending 
Regulation (EC) No 1060/2009 on credit rating agencies, OJ L146, 31.5.2013. 

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