Small Business FinancingOPIC 2014-2020Concept summary

November 2019

Dear Partners,

Thank you for your interest in our instruments.

We are delighted to share with you this summary of Small BusinessFinancing by the Operational Programme Innovation and Competitiveness2014-2020.

We believe that your feedback as one of the pivotal elements towards thesuccessful implementation of our products. Hence, we remain on yourdisposal to discuss in details any comments or suggestions that you mayhave with respect to the intended modus operandi of our financialinstrument.

We look forward to discussing with you further.

Kind regards,

The FMFIB team

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Background

▪ Fund Manager of Financial Instruments in Bulgaria EAD (FMFIB) has been appointed by the Managing Authority of Operational Programme “Innovations and Competitiveness” 2014-2020 (OPIC, the Programme) to manage the financial instruments encompassed in the Programme

Our role

▪ FMFIB is tasked with: (i) structuring the financial instruments in line with the objectives of OPIC; (ii) selection of intermediaries; and (iii) monitoring and supervising the implementation of the instruments

Market testing

▪ With the aim to execute its mandate transparently, as well as align thestructures of our financial instruments with the appropriate marketpractices, FMFIB is conducting comprehensive consultations with thepotential stakeholders

Purpose of this document

▪ To present а summary of the intended structure and approach forimplementation of the financial instrument “Small Business Financing”

▪ In addition, FMFIB published an indicative term sheet for the financial instrument as a basis for detailed discussions (refer to www.fmfib.bg)

Structure of this document

▪ The document presents an overview of:

‒ FMFIB structure and operations

‒ Purpose of the financial instrument Small Business Financing

‒ Main features and key indicative terms & conditions of the financial instrument

‒ Tentative roadmap of the overall process

About this document

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Fund of Funds in a nutshell

Financial Instruments

▪ The EU-funded FIs are designed to support final recipients via market-driven mechanisms (e.g. loans, equity investments etc.) whilemobilising additional funds and expertise from the private sector.

▪ FIs’ structure also entails revolving funds, i.e. reuse of the public funds for the same policy goals

▪ Given their advantages over grants, an increasing portion of the Union budget is channelled to financial instruments

Fund of Funds

▪ FIs under Operational Programs (OP) in the country are implemented via a national investment vehicle structured as Fund of Funds. FMFIB has been established as the entity managing FoF.

▪ Currently, four OPs contribute funds earmarked for financial instruments in the total amount of approximately EUR 631 million

▪ The financial instruments are expected to mobilize support and capital from the private sector and the fully leveraged FoF is expected to facilitate the investment of ~EUR 1.4 billion in the Bulgarian economy (including its own dedicated resources).

▪ The implementation of the FIs would be entrusted to intermediaries selected and monitored by FMFIB.

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Private Investors

Intermediaries

NationalCo-financing

ESIF

Financial Instruments

Final recipients

FMFIB Portfolio/ FMFIB Financial Instruments

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Seed/ Acceleration and Start-up Fund

2 assigned Funds1 in procurement procedure

Technology Transfer Fund Procurement ProcedureOPIC

OPIC

Venture Capital Fund First closing pending

Mezzanine/ Growth Fund Assigned intermediaryOPIC

OPIC

Microfinancing 7 Signed Agreements

Guarantees Procurement Procedure…….OPIC

OPHRD

BGN 59mln

BGN 108mln

BGN 78mln

BGN 49mln

BGN 137mln

BGN 53mln

Urban Development Fund 3 Signed AgreementsOPRD

Water

Waste PreparationOPE

OPE

BGN 353mln

BGN 52mln

BGN 233mln Signed Agreement

MicrofinancingOPIC Market testBGN 29mln

Guarantees for Microfinancing

Procurement ProcedureOPHRD BGN 17mln

Fund of Funds Scope:

▪ Fund of Funds portfolio includes 18 financial instruments;

▪ Most of the products are already agreed;

▪ Procurement procedures for selecting of financialintermediaries are currently underway:

‒ Capped Guarantee for innovations with budget ofEUR 30 mln.

‒ Capped Guarantee for Energy efficiency with budgetof EUR 40 mln.

‒ Technology Transfer Fund with a budget of EUR 30mln.

‒ Capped Guarantee for microfinancing with a budgetof EUR 10.6 mln.

JESSICA 2 Signed AgreementsOPRD BGN 58mln

▪ The funds under OPIC for the Financial instrument are aimed atincreasing the productivity and export potential of Bulgarian SMEs.

▪ The Financial instrument is intended to finance loans, aimed atcontributing to the growth and strengthening of the overall operatingactivity of micro-enterprises.

▪ The financial instrument aims to support enterprises that have difficulties in obtaining a loan due to:

– Lack of sufficient collateral and

– Perceived higher credit risk

‒ Prohibitive interest rates

‒ Limited number of specialized entities in the microfinancingmarket

Financial Instrument Purpose

Support Bulgarian businesses

Improve debt pricing Reduce collateral

Contribution to the growth and strengthening of the

operating activity of micro-enterprises

Financial Instruments purpose for financing under OPIC

Micro, Small and Medium Enterprises

(mainly in the lower segment)

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▪ In a nutshell, the scope of the intermediaries` service wouldencompass:

‒ Originate, close and monitor a loan portfolio of eligible loans

‒ Manage NPLs

‒ Maintain and provide the required reporting

‒ Ensure compliance with the respective EU and nationalregulations

‒ Application of state aid rules (De minimis)

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Loan indicative terms & conditions

Investment and working capital financing, including revolving credit line and overdraft. Financial leasing

Type

Up to 35,000 euro or equivalent amount in BGN. One borrower may receive more than one loan

Amount and currency

From 12 to 120 months, including grace periodsTerm

Regular interest: weighted average interest rate taking into account the share of interest-free financing of FMFIB and co-financing of the intermediary provided at market rates. No fees are applicable to the final recipient for the FMFIB resource.

Price

The collaterals and conditions should reflect the favorable financing terms as a result of FMFIB’s risk sharing.

Collateral

Financial Instruments would be implemented in accordance with de minimis rules.The intermediary would have to calculate the Gross Grant Equivalent (GGE) applying amethodology and a tool provided by FMFIB.

De minimis

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▪ The terms and conditions of the Financial instrument will be defined inagreement between FMFIB and the Intermediary.

▪ FMFIB would engage one or several intermediaries. FoF is consideringthe possibility of splitting FI`s fund into lots, depending on the receivedfeedback in the current process.

▪ The budget of the Instrument is 15 million euro and will support a newcredit portfolio of 21 million euro.

▪ The Instrument will finance a portfolio of loans in which up to 70% ofeach is funded by FMFIB.

▪ For each loan min 30% funding are provided at market rates by theselected intermediary (banking or non-banking institution).

▪ The specific amount of co-financing will be а subject of a proposal bythe intermediary. Depending on the received feedback in the currentprocess, FMFIB could allow intermediaries to offer different co-financing rates for different borrower risk groups

▪ FMFIB has the possibility to pay the intermediaries a management fee,the amount of which will be the subject of a proposal.

▪ FMFIB funding could be with zero interest rate. Depending on thereceived feedback in the current process, FMFIB funding price could besubject to an offer by the intermediary.

▪ Proceeds (incl. losses) from each loan would be distributed under equalconditions and in proportion to the funding provided between FMFIBand the intermediary.

Risk Sharing Mechanism

15 million euro

Financial Intermediary

Credit Portfolio min. 21

million euro

Co-financing min. 30 %

Operating Agreement

Management Fee

Eligibility

DealBorrower

Micro, Small and Medium Enterprises New deals only √

Companies in difficulties

Restricted sectors (i.e. Fisheries, Aquaculture, Tobacco, Defense, Nuclear, etc.)

Limited sectors (i.e. special limitations apply to Finance, Transportation, Agriculture, Real Estate operations, Purchase

of used tangible asset and others) Refinancing/ restructuring/ recap ꭙ

Investment, revolving and working capital loans, overdraft √

Bridge financing to grant ꭙ

√

ꭙ

Company established abroadꭙ

Senior debt only √

Financial leasing √

Operating lease ꭙIn violation of anti-money laundering measuresꭙ

ꭙ

ꭙ

▪ According to the investment strategy of the Financial Instrument the focus of the resource is financing of micro-enterprises.

▪ FMFIB is considering to put a minimum requirement for the number of funded micro-enterprises, depending on the received feedback in thecurrent process.

▪ For the purposes of the Financial Instrument, micro-enterprises will be defined as those that:

‒ Have an average stuff number of less than 10 persons

‒ Report annual turnover not exceeding BGN 3.9 million, and/ or assets value not exceeding BGN 3.9 million

Covered loss. Triggers & claims. Irregularities

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▪ The funds, provided by FMFIB, will be utilized and repaid by theborrower pro rata with the funds of Intermediary.

▪ FMFIB would not allow decreasing of the borrower`s debt as a result ofloan restructuring.

▪ The intermediary would have the right to cover external foreclosurecosts with proceeds from release of collateral before distribution toFMFIB

▪ In case of irregularities or ineligible borrowers or cost, the respectiveloans would be excluded from the credit-portfolio

▪ Irregularities and ineligibility may apply to the whole loan amount orcould be partial

▪ If the irregularities are caused by the borrower, the intermediarywould have the right to accelerate and to request amounts refunding,in which case FMFIB would share the potential losses.

Default

Acceleration

Regular loan

Debt workout

Restructuring

Process roadmap

▪ Following the completion of this market test exercise, the FMFIB team would compile a complete tender package and would issue a call for EoI

▪ FMFIB typically applies a two-stage procedure including a shortlisting stage and an award stage, the latter encompassing limited scope negotiations with the shortlisted candidates

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Market test

Tender launch Q&A

Submit tenders

Prelim offers & Nego`s

Shortlisting

Final offers & award

Following the completion of this market test exercise, the FMFIB would amend the TS, compile a complete tender package and issue a call for EoI

All interested parties could submit EoI

FMFIB would assess the candidates re. & invite the ones which pass preset eligibility criteria ones to submit prelim offers (typically we allow for at least a month for that purpose)

FMFIB would review the prelim offers & conduct limited scope negotiations with all candidates

Following the negotiations, all tenderers would be invited to submit final offers which would be evaluated based on the preset award criteria

Opinion. Investment recommendation. Advice

This document (“the Document”), in whole or in part, is not to be construed as an opinion, or an investment recommendation, or a recommendation, or an advice to proceed or not with any considered transaction or other course of action.

According to the applicable regulations, the selection of financial intermediaries with respect to the implementation of the financial instruments under OPIC is subject to successful completion of a formal tender procedure and decision of FMFIB’s competent authorities.

Change in regulations

The information provided in this Document is based on a number of laws and other regulations, both national and European, effective as of the date of its preparation. Changes in the applicable regulations may render the Document, in part or in whole, obsolete or not applicable.

FMFIB assumes no responsibility towards third parties in relation with any such changes, amendments as well as with respect to interpretations of either the law or other legal documents with respect to any legal forum. FMFIB shall assume no liability or responsibility for any costs, damage, losses or expenses incurred by any party arising out of use of or reliance on this Document.

Document distribution

This Document has been prepared solely for the purpose stated herein and should not be used for any other purpose. Neither it nor its contents are to be referred to or quoted, in whole or in part, in any legal document without our prior written consent. This Document is intended for publication but it should not be reproduced or distributed without FMFIB prior express consent.

Third party information

In preparing this Document, we have used information and documents provided by the Managing authority of Operational programme “Innovations and Competitiveness” as well as information available from publicly available sources.

We have not sought to establish the reliability of the above mentioned data by reference or analyses and hence we do not accept responsibility for such information.

Important disclaimer

Any information you provide will be used solely for the purposes of market consultations in the context of the requirements of the Public Procurement Act ("PPA"). The terms and concepts used in this presentation have the same meaning as in the indicative technical specification of the Financial Instrument. The information provided is considered by FMFIB as indicative and does not cause obligation to you or FMFIB.

In connection with the requirements of Article 44 of the PPA, FMFIB reserves the right to publish the received feedback without mentioning specific organization bringing it together with the answers from our side and occurred in this regard changes to the indicative technical specification (if applicable).

Important notice

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Contact details:

Fund Manager of Financial Instruments in Bulgaria

1606 Sofia, Bulgaria30/32 Totleben Blvd

Copyright

Fund manager of financial instruments in Bulgaria EAD is a Bulgarian joint stock company owned by the Bulgarian state, represented by the Ministry of finance.

Fund manager of financial instruments in Bulgaria EAD logo and the logo of Operational programme Innovations and Competitiveness are owned by the respective organisations.

All rights reserved