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BUSINESSES ARE SEEKING NEW METHODS OF FINANCING

Finding investment funding

SLOWER economic growth has made companies as well as banks more prudent when it comes to finding money for investments. Moreover, instead of seeking new loans firms have tended to focus on optimising their costs and strengthening their liquidity. But scarcity of funds is now pushing them to search for other ways to finance projects.

SLOWER economic growth has made companies as well as banks more prudent when it comes to finding money for investments. Moreover, instead of seeking new loans firms have tended to focus on optimising their costs and strengthening their liquidity. But scarcity of funds is now pushing them to search for other ways to finance projects.

“In general, companies are more prudent and do not hurry into investments to such an extent as was common a few years ago,” Andrej Viceník, director of VÚB Banka’s department for small and medium-sized enterprises (SMEs), told The Slovak Spectator. “Everybody realises very well that only optimally used investment is effective.”

Viceník recalled that in the past many companies made investments in new production or other capacities and then had problems using them. Such experiences have led companies to be much stricter in assessing investment plans and to conduct more detailed analyses into whether to carry out investments, when to do so and under what conditions.

The experience of UniCredit Bank Slovakia is that while companies previously tended to pursue investment projects, they are now focusing on optimising costs and strengthening liquidity instead.
“The demand for investment loans has been replaced by demand for short-term operating finance,”
Zuzana Ďuďáková, spokesperson of UniCredit Bank Slovakia told The Slovak Spectator.

Last year UniCredit Bank in Slovakia registered particular interest, among its large and international clients, in financing investments in the electro-technical, automotive production, transport, health-care and telecom sectors. In cooperation with export credit agencies, the Slovak arm of the bank financed, as part of an initiative within the UniCredit group, inward investment projects from western Europe and Asia.

In the project and structured financing sector, UniCredit in Slovakia recorded continuing interest in financing for projects in the energy and energy infrastructure sectors, and maintained its leading position on the market for financing photovoltaic power stations. The bank was also engaged in other projects in renewable energy resources like biomass, biogas and small hydroelectric power stations.

In the health-care sector it again increased its engagement, participating in several projects via acquisitions and structured financing.

Banks in Slovakia list an extensive range of possibilities for financing investments by companies. Viceník gave as examples bridging loans for municipalities, classical investment loans allowing corporate clients to pay for investments over several years, all the way up to project and structured financing.

According to Ďuďáková, UniCredit Bank Slovakia approaches each company individually and provides tailor-made financing.

“The scope of financing and the willingness to provide it will depend especially on the development of the macroeconomic situation,” said Ďuďáková. “When providing financing to companies we also use resources from the EIB and EBRD as well as export credit agencies.”

Mezzanine financing

Bank loans are not the only possibility companies have for obtaining investment finance. The economic slowdown, the longer times taken to pay invoices and the more prudent approach of banks to financing have pushed companies to look for less traditional ways of financing. These include mezzanine financing, i.e. provision of mezzanine or subordinated debts.

“Mezzanine financing represents a relatively new kind of loans, but despite this demand for this method of financing is growing,” Lenka Barteková from RMS Mezzanine, which is active in Slovakia and the Czech Republic, told The Slovak Spectator. “We receive interesting projects with applications for this way of financing every day.”

According to Barteková, entrepreneurs are interested in it, but they do not know where to look or what to look for. Since small and medium-sized companies in particular have been facing problems securing finance over the last few years, this is reflected in their higher interest in mezzanine financing.

With regards to sectors, RMS Mezzanine says it has financed a wide range of projects – from photovoltaic power stations, solar parks, biogas stations, up to a media holding, retail and projects in tourism, and adds that it is also recording interest from the food and clothing industries.

In 2011 RMS Mezzanine analysed 141 investment projects, most of which it rejected due to risks associated with the business plans submitted, or because of unrealistic expectations. It invested more than €197 million in 26 new projects during the year.

Barteková does not see a huge difference between sectors in mezzanine financing between different countries, but says interest is in general bigger abroad than it is in Slovakia.

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