The European Investment Bank (EIB) and the European Commission (EC) are sounding the market ahead of a projected post-summer launch for a broadband-focused infrastructure fund, according to documentation seen by Infrastructure Investor.
The vehicle is expected to reach a first close of between €400 million and €500 million in the fourth quarter of the year. A GP search should officially start in early May, with the publication of a call for expressions of interest in the Official Journal of the European Union. The EIB and the EC are looking for managers capable of raising at least €100 million at first close and expect to appoint one in the autumn.
The EC and the EIB should contribute €100 million each, with the private sector contributing at least €200 million to reach a €400 million minimum first close. It is unclear how much the fund is targeting overall. But the fund 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.
While the fund has an overall 20-year life, the different layers might have different durations. It will invest equity and quasi-equity in high-speed broadband infrastructure (wired and wireless) either by directly financing private sector companies, especially SMEs and mid-caps that are providing those services, or through investments in PPPs and other public and private intermediaries. Rural areas across Europe are of particular interest.
The new vehicle will look to invest between €1 million and €20 million across a minimum of 15 EU countries (with a target of 20) and aim to close between seven and 12 investments per year. The future GP, however, will be incentivised to focus on sub-€15 million investments and expand to new countries. The broadband venture will not be allowed to finance more than 50 percent of a project’s long-term value and cannot acquire majority stakes in any investee company.
In January, the EIB lent €25 million to Gigaclear, a UK-based broadband provider targeting rural areas. Last week, Infracapital and Woodford Investment Management injected €24 million of new equity into Gigaclear, to accelerate its expansion plans.