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Mario Cucchi and Guido Borsani

7 th Monitoring Committee Meeting. Mario Cucchi and Guido Borsani Funding regional projects through financial engineering in Lombardy, Italy. Thessaloniki, 15 th of July 2005. Lombardy is the largest Italian Region and represents over 1/5 of the whole national economy. Context History

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Mario Cucchi and Guido Borsani

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  1. 7th Monitoring Committee Meeting Mario Cucchi and Guido Borsani Funding regional projectsthrough financial engineering in Lombardy, Italy Thessaloniki, 15th of July 2005

  2. 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)

  3. Finlombarda’s History INCORPORATION of FINLOMBARDA SpA 1971 1999 2004 TIME 1998 2001 INCORPORATION of FINLOMBARDA GESTIONI SGR SpA REGION OF LOMBARDY OTHERS Context History Mission Strategic Positioning Activities Tools Examples

  4. Finlombarda is aimed at supporting the economical, social and territorial development of the Region Context History Mission Strategic Positioning Activities Tools Examples Finlombarda is… …a bridge between the public and private finance …an institution that promotes and manages innovative financial products …an institution that finance “excellence” for the competitiveness of Lombardy’s economy

  5. Comparative analysis of the credit enhancement positioning in PPP in Europe Areas of general interest missions (urban development, venture capital, local economic development) Strong Germany Spain Italy Group 1 France U.S..A Relative importance of public financial players in public interest financing The Netherlands Group 2 Ireland U.S..A Group 3 United Kingdom Weak Strong Relative importance of PFI and private tools&products Weak Source: Advention 2002 Context History Mission Strategic Positioning Activities Tools Examples

  6. Areas of activity Context History Mission Strategic Positioning Activities Tools Examples CORPORATE FINANCE PUBLIC FINANCE Credit facility for SME: More than 20 tools set up Financial advisor for SME UE Programmes Management Technological Vouchers Structured finance for public infrastructures: Public Utilities Fund Advisory services to PPP and PF projects: PF Regional Unit PF Fund Infrastructure Fund “Obj. 2” Closed-end Funds: NEXT Fund EUROMED Fund MEZZANINE Fund Closed-end Funds: SOCIAL HOUSING Fund

  7. Three different tools to fulfil Regional economic policy expectations Region of Lombardy FUNDS FUNDS MANDATE MANAGEMENT Finlombarda SpA Finlombarda Gestioni SGR REVOLVING FUNDS PRIVATE and THIRD PARTIES FUNDS REGIONAL FUNDS PUBLIC FUNDS INVESTMENT FUNDS REGIONAL FUNDS PRIVATE and THIRD PARTIES FUNDS REGIONAL FUNDS CREDIT FACILITIES GRANTS & CREDIT FACILITIES VENTURE CAPITAL, MEZZANINE FINANCING ≈ € 300 Ml ≈€ 40 Ml ≈€ 100 Ml Context History Mission Strategic Positioning Activities Tools Examples

  8. Finlombarda Gestioni SGR has launched NEXT: a closed-end fund of funds aimed at developing a Venture Capital market in Lombardy REGION OF LOMBARDY guarantees Context History Mission Strategic Positioning Activities Tools Examples

  9. Finlombarda is setting up an innovative financial tool to subsidize Lombardy water and wastewater infrastructure projects Region of Lombardy • Finlombarda S.p.A. REVOLVING FUND REGIONAL FUNDS PRIVATE and THIRD PARTIES FUNDS GUARANTEE FUNDING CAPITAL MARKETS LOANS, BONDS, COMMERCIAL PAPERS SUBSIDIZED LOANS CREDIT ENHANCEMENT BORROWERS Context History Mission Strategic Positioning Activities Tools Examples

  10. Public fund management Public Finance Corporate Finance • Regional Facilities to SMEs (20 typology of interventions) • Special facilities to cluster • UE Programmes • Technological Voucher • EU facilities to SMEs (Objective 2 areas ) • Advisory in Public-Private Partnership (PPP) and Project Finance (PF) • Project Finance Regional Unit • Project Finance Fund • Public utilities Fund • InfrastructuralFundObjective 2 • NEXT Fund • Euromed Fund • Mezanine Fund • Social Housing Fund

  11. New financial tools for corporate finacing Regional and EU Facilities to SME 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

  12. New financial tools for corporate financing – the main standard conditions Regional Facilities to SME A non traditional toll for the SMEs development financing (revolving fund) • 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

  13. New financial tool for Corporate Financing Amount & leverage RegionalFinancial tools for SME AMOUNT OF FINANCIAL FUNDS MANAGED 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 €.

  14. New financial tools for corporate financing - financial efficiency Regional and EU Facilities to SME Aid intensity Leverage Figurative cost Interest contribution Revolving fund grant PA costs

  15. New financial tools for corporate finacing EU Facilities to SME – SPD objective 2 A non traditional toll for the SMEs development financing (revolving fund) Artisan enterprises • 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

  16. New financial tool for the public sector Infrastructure Fund - objective 2 areas 209million € from ERDF 146 million € by Italian Government 66 million € by Lombardy Region

  17. New financial tool for the public sector Infrastructure Fund - objective 2 areas 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

  18. New financial tool for the public sector KEY ACTORS: Development strategy PROJECTS’ SELECTION Managing Authority FINANCIAL DISBURSEMENT Fund’s Manager PROJECTS’ IMPLEMENTATION Final Beneficiaries Final Beneficiaries to the Fund Manager LOAN REIMBURSEMENT

  19. Finlombarda S.p.A. - New financial tool for the public sector Infrastructure Fund - objective 2 areas ACTIVITIES and TOOLS The total financial aiddisbursed 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 40% GRANTS FINANCIAL AID 60% INTEREST FREE LOANS

  20. Finlombarda S.p.A. - New financial tool for the public sector Infrastructure Fund - objective 2 areas RESULTS Local public institutions which benefited from the Fund’s financial support from September to present 243 beneficiaries 600.000 inhabitants Population of the regional area eligible to financial support + multiplication effect 400 applications Received by the MA during the call for projects 500 million euro Total cost of infrastructure interventions financed by the Fund

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

  22. Finlombarda S.p.A. - New financial tool for the public sector CONCLUSIONS Compared to the traditional subsidy system, the Infrastructure Revolving Fund presents UNIQUE characteristics: • 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

  23. Finlombarda S.p.A. - New financial tool for the public sector CONCLUSIONS Compared to the traditional subsidy system, the Infrastructure Revolving Fund presents UNIQUE characteristics: • MULTIPLIEREFFECT: 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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