The European Investment Bank (EIB) has published a call for expressions of interest to find a manager for its new broadband fund, which is also backed by the European Commission (EC).
Interested managers should submit their proposals by July 8, with the EIB looking for GPs with experience of raising at least €100 million at first close.
As first reported by Infrastructure Investor, the new 20-year vehicle, known as the Connecting Europe Broadband Fund, is targeting a first and potentially final close of between €400 million and €500 million in the fourth quarter of the year. The EC and the EIB are slated to contribute €100 million each, with the private sector contributing at least €200 million.
The fund will be able to invest directly in private and public sector companies, PPPs and via other financial intermediaries, with rural areas across Europe being of particular interest. It also has a layered structure that will see different investors exposed to different risk-return profiles.
The EC's investment in the fund's C shares will bear the brunt of the risk, essentially acting as a first-loss piece. Next in line is the EIB's (and potentially other investors') commitment to the fund's B shares. Finally, investors (private capital, international financial institutions or national development banks) who commit preferred equity to the vehicle's A shares will be the most protected.
“We act as a patient investor, willing to take the risk. We are the last ones to be paid and we will take the return that comes at the end. If it's a good return, then I hope the next fund will happen without us,” Anna Krzyzanowska, head of the broadband unit at the EC's DG Connect told us in a recent interview.
The main risks attached to these smaller projects, according to Krzyzanowska, are competition – the possibility that another broadband provider will also target an area that cannot sustain two companies – and a slower than expected ramp-up period, which might frustrate return expectations. In addition, “big companies very often have a change of heart once they see smaller companies investing in a particular area,” she pointed out.
What the fund will not do, though, is “invest in projects that are non-starters – otherwise we wouldn't be acting as providers of long-term financing, but rather as providers of a hidden grant,” Krzyzanowska stressed.