SO HERE’S THE news so far: the metro is on strike for the eighth time this year in protest at the sale of an operating concession to a foreign company (Avanza) and possible job cuts; a controlling 61% stake in the national flag carrier has been sold to an international consortium to a cacophony of worker dissent; there is a visibly increased police presence on the streets; and some low-life stole my wallet with all of my credit cards and cash.
Welcome to Lisbon, capital of the country that is supposed to be on the up and up but the only sign of economic activity I can see is a rather disturbing obsession with four-star city centre self-styled boutique hotels that have proliferated to an extent the world surely doesn’t need and which are trying so hard to be cool and uber-hip that it has long ceased being funny.
Any signs of the administrative reform that was supposed to have accompanied the bailout and designed to make doing business easy are passing me by. I’ve been attending meetings with bankers and lawyers this week – for transparency’s sake in a personal capacity – and it’s as bewilderingly and frustratingly bureaucratic as ever it was. Oh well. But as least the sun is shining.
Away from the day-to-day, I was pleased to see another step towards the go-live date for the European Fund for Strategic Investments, which is supposed to be unleashing investment capital of €315bn over three years. I’m not sure if I fully understand how the EU got to that number – given potential double-counting with existing EIB capital in play around the plan – but as a headline amount it’s impressive.
And I must say this is one place the EU machine appears to working overtime to get an initiative kick-started. EC president Jean-Claude Juncker met on June 25 with European Parliament president Martin Schulz (which likes the plan), Xavier Bettel, prime minister of Luxembourg and Laimdota Straujuma prime minister of Latvia – by the way, aren’t the Latvians having a ball basking in the glow of their EU presidency? – to make sure they’re on the same page around how the EFSI is going to work with a view to having the loans it guarantees up and running for entrepreneurs by September.
THAT’S NOT BAD going on the timing, given it’s only been on the docket formally since January, when the legislative proposal was adopted. And that was only 50 days after the EC initially announced its investment plan for Europe soon after Juncker took to his cushy office.
There’s a lot of credibility tied up in the smooth functioning of the EFSI, which will in essence be a public-private investment lender and co-investor focusing on high-risk ventures that support strategic investments in areas such as broadband and energy networks as well as corporates with fewer than 3,000 employees (which will cover most European companies).
The EIB sits at the heart of the plan but EFSI projects are also open to national development of promotional banks. The European Investment Advisory Hub will support the fund with project identification and capacitation benefits while investors will be kept informed via a project pipeline to facilitate due diligence and investment decisions. It all sounds like a pretty thought-through plan.
Actually if it can work, I think it’s a cool initiative. One of the key bottlenecks is likely to be project selection, as an EC/EIB task force had initially identified around 2,000 potential projects worth €1.3trn! The plan is for a Guarantee Fund offer a liquidity cushion against losses funded by EU budget transfers.
The capital and liquidity buffers forced on EU banks do make long-term lending pretty unattractive
IF ONE OF the EU’s over-riding concerns is the lack of private bank lending to the European economy, another key plank of its investment plan is opening up infrastructure financing, which is also high up on the agenda. The two, of course, are intimately intertwined, as the capital and liquidity buffers forced on EU banks do make long-term lending pretty unattractive.
The ability, therefore, to divert some of the “considerable untapped financial firepower” of capital markets investors into co-investment projects with the EFSI prompted AFME and ICMA to jointly release on June 24 their guide to infrastructure financing, bank loans, debt private placements and public bonds – smoothing the pathway for effective funding”.
(As an aside, it’s nice to see their two industry trade bodies playing nicely in the sandbox. There had been some latent tension between the two as their missions kind of cross and get in each other’s way. But they’ve made up and are often seen striding out together these days.)
Anyway, they’ve hailed the guide as “the first comprehensive and practical guide to help infrastructure issuers, sponsors and project companies more easily tap various types of funding, including bank, private placement and public project bond financing in Europe”.
Whether bond and PP investors can take European infra spending from its current €419bn and find additional capital to fill the an additional €1.5trn–€2trn to meet the EU’s 2020 goals is another story but at the very least the guide explains how EFSI works from a private-sector perspective, and AFME/ICMA say it should help generate more deal flow.
At heart I have my doubts that the project bond market will ever amount to anything substantial; regardless of the guide, project lending remains a complex animal best left to banks and specialist funds. But if the EFSI can get beyond posturing and get its money to work in the fabric of its member economies, it’ll be one-up for the benefits of public finance and putting your money where your mouth is as opposed to baiting private financiers for their reticence or relying on private solutions that may never emerge.
