1 FEI CREDIT LINES PME Investe I & II FIN-EN -Sharing Methodologies on Financial Engineering for Enterprises Lisbon Meeting, 26 September 2013.

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FEI CREDIT LINESPME Investe I & II

FIN-EN -Sharing Methodologies on Financial Engineering for Enterprises

Lisbon Meeting, 26 September 2013

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Main factors which led to the launch of PME Investe I & II

Description of this Financial Engineering Instrument

Monitoring procedures

Results

CONTENTS

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2008 Economic Framework

Economic context in 2008 is, necessarily, related to the crisis in the international financial markets.

Some relevant facts:

Sub-prime crisis in the USA which rapidly spread to other economies

Euribor Rates rose to historical high levels

Increase in the cost and shortage of lending to households and companies

Increase in the price of raw materials as a result of the rising cost of

petroleum

Cooling down of the Economies

4

Financing Costs in 2008

Historical Evolution of the 3 month Euribor Rate

Euribor Rates reached their

peak in October 2008,

reflecting liquidity problems

and lack of confidence in the

financial sector.

On average, during 2008,

Portuguese companies paid an

interest rate of 7.64% on loans

up to the amount of 1 M€,

higher than the rates in Euro

zone by approximately 170

basis points.

Interest Rate on new operations up to 1 M€

(*) Source: Statistical Bulletin of July 2013 – Bank of Portugal

0%

1%

2%

3%

4%

5%

6%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

EURIBOR 3M

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Jul-0

8

Set-

08

Nov

-08

Jan-

09

Mar

-09

Mai

-09

Jul-0

9

Set-

09

Nov

-09

Jan-

10

Mar

-10

Mai

-10

Jul-1

0

Set-

10

Nov

-10

Jan-

11

Mar

-11

Mai

-11

2008 2009 2010 2011

Interest Rate Portugal, loans up to 1 M€ (*)

Interest Rate Euro Zone, loans up to 1 M€

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Main factors which led to the launch of PME Investe I & II

Description of this Financial Engineering Instrument

Monitoring procedures

Results

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Launching Credit Lines PME Investe I & II

In a highly unstable macroeconomic environment, with strong constraints in accessing to credit, as

well as high associated costs of financing, two Credit Lines were launched, co-financed by Structural

Funds, to support Portuguese SMEs.

PME Investe II Credit Line

Amount of Credit : 1.000 M€

Generalist Sub Line: 750 M€

Trade Sub Line: 200 M€

Restaurants Sub Line 50 M€

Start: October/2008

Closing: May/2011

Amount of Credit: 750 M€

Start: July/2008

Closing: January/2009

PME Investe I Credit Line

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Setting up the Financial Engineering Instrument

The Portuguese Government invited Banks operating in Portugal to join this initiative, through the

signature of an Agreement also subscribed to by the Managing Authorities of COMPETE and

Regional Operational Programmes for Lisbon and Algarve, and the Mutual Guarantee Societies,

establishing the conditions for these Credit Lines:

Linha de Crédito PME Investe IEligible final recipients and eligible operations

Types of financing and loans conditions

Decision and contract process

Procedures of reporting and monitoring

Default and penalties

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Operationalisation

Banks are responsible for:

PME Investimentos, as the Credit Lines management entity, is responsible for:

Validating eligibility conditions

Assuring front office services during the settlement of credit and mutual guarantee agreements

Monitoring the investments made by companies

Providing information to PME Investimentos on the credit loans (contract, disbursement, interest rates,

early repayments) and defaults

Ensuring that the Credit Lines amounts set by the Managing Authorities are not exceeded.

Calculating the amount of public aid granted to companies and registering it in Central Register of de

minimis Aid

Representing the Managing Authorities when communicating with Banks and MGS

Promoting verifications in order to check eligibility conditions and the investments made by companies

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Funding Flow

The bank transfers the funds to the company and then the company repays the loan in accordance with the terms agreed

Payment of subsidised interest and guarantee fees

Contributions to Mutual Counter Guarantee Fund Capital

Banks

Mutual GuaranteeSystem

MCGF

PME Investimentos SME’s

FINOVA

5

6

2

4Provide a guarantee for 50% of the financing

ManagingAuthorities

StateFunds

1Contribution of funds to FINOVA

3Counter guarantee of 80% of the guarantee

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Advantages for the SMEs

Competitive Interest Rates

Lower than the market average rates

Benefiting from a Mutual Guarantee

Easier access to credit as a result of sharing risk between Banks and MGS

Subsidised Interest Rates

Interest is partially subsidized

Guarantee Fees are fully subsidized

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Access Conditions

Micro, Small or Medium Enterprises

Location – company’s head office in Mainland Portugal

Company’s activity in line with SAFPRI (FEI national regulation)

No prior unjustified incidents or defaults with banks

All contributions to the Tax Administration or Social Security have been settled

Companies benefiting from PME Investe I Credit Line could not apply for Credit Line PME Investe

II

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Investments

Acquisition of land, real-estate, vehicles and second-hand goods

Financial restructuring and/or debt consolidation

Operations excluded by the SAFPRI (FEI national regulation)

Not eligible

Eligible

Investment in new tangible or intangible fixed assets and investment in working

capital related to the increase in activity

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Application Process

Banks

MGS

PME Investimentos

Credit RequestApplication

Approval

Maximum 3 business days

Approval of the guarantee

Maximum 7 business days SME’s

Settlement of credit and guarantee agreements

Maximum30 business days

2

1

54

3

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Funding conditions

(1) Minimum rate of 1.5%(2) Maximum Limits

Credit Line I

Maximum amount per company

PME Líder – 1,500,000 € Others – 1,000,000 €

Credit Line II Generalist

Credit Line II Restaurants

Credit Line II Trade

PME Líder – 1,000,000 € Others – 750,000 €

200,000€

PME Leader – 300,000 € Others – 250,000 €

Interest rate to be paid by the company

Euribor 3M – 1.25% (1)

Euribor 3M – 0.50%(1)

Maturity (2)

PME Líder

5 years

Others

4 years

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Months

Disbursement Period

(2)

6 Months 50%

Grace Period

(2)

Guarantee(2)

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Process to determine company ratings

Company Rating

The risk level of the company takes into consideration the Equity ratio and the Net Debt/EBITDA ratio and

classifies the company accordingly with the lowest rating observed for each of them.

PME Líder rating has its own methodology and is a label issued by IAPMEI, under proposal of Banks, recognizing

the quality of companies performance, growth and risk profile.

Example

Company from the Industrial Sector

Equity Ratio 35% - Rating A

Net Debt/ EBITDA: 4 years – Rating B

Thus, the company is rated as having

a B risk level.

others Trade and Services

Other companies:

Rating A ≤ 3 ≥ 30% ≥ 20%Rating B 3 a 5 20 a 30% 15 a 20%Rating C ≥ 5 ≤ 20% ≤ 15%

PME Líder Specific methodology

Net Debt / EBIDTA (number of years )

Equity Ratio

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Interest Rates

Spreads and Guarantee Fees

Gap between interest rates

The Credit Lines rates are quite

attractive compared to the market,

reflecting the impact of the

subsidies granted and the effect of

negotiating with Banks, which

includes providing a mutual

guarantee.

Companies pay the 3 month

Euribor rate, deducted by 1.25%

and 0.5%, respectively, for Credit

Lines I and II, with a floor, which at

the end of January 2009, was

reduced from 3% to 1.5%.

(*) Source: Statistical Bulletin July 2013 - Bank of Portugal

0,00%

1,50%

3,00%

4,50%

6,00%

7,50%

9,00%

Jul-0

8

Set-

08

Nov

-08

Jan-

09

Mar

-09

Mai

-09

Jul-0

9

Set-

09

Nov

-09

Jan-

10

Mar

-10

Mai

-10

Jul-1

0

Set-

10

Nov

-10

Jan-

11

Mar

-11

Mai

-11

2008 2009 2010 2011

Interest Rate Portugal, loans up to 1 M€ (*)

Credit Line I and II, interest rate paid by the company

PME Líder 1,250% 0,625%

Rating A 1,375% 0,750%Rating B 1,500% 1,125%Rating C 1,875% 1,750%

Guarantee feesRisk LevelOverall Spread

(50% SGM)

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Main factors which led to the launch of PME Investe I & II

Description of this Financial Engineering Instrument

Monitoring procedures

Results

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Regular Procedures

Validation of contract information

Validation of disbursements

Validation of interest grants

Validation of guarantee fees

Monitoring Procedures

Procedures for the reporting of information by Banks and MGS were established, allowing

PME Investimentos, as managing entity of the Credit Lines, to undertake a number of

control procedures during the life of the credit loans.

Additional Procedures

Validate eligibility of final recipientsand investments made

Monitoring defaults

Monitoring counter guarantees issued

Monitoring called on guarantees

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Main factors which led to the launch of PME Investe I & II

Description of this Financial Engineering Instrument

Monitoring procedures

Results

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Demand Profile

53% Small companies

Credit Lines PME Investe I & II

1.535 M€Total Credit Loans

4.508Loans

Average operation amount 340 k€

42% Northern Region

44% Industrial Sector

Average maturity 4.4 years

62% Investment in Fixed Assets

Average number of employees 36

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Multiplier Effect

Investment

1.750M€Credit Loans

1.535M€

Public Investment138 M€

Counter guarantees

MCGF

612 M€

GuaranteesMGS

766 M€

Companies 4.443

Employment 160.000

Multiplier Effect

11 X

Leverage information is based on updated costs estimate.

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Total Credit Transaction

Since 2009, the Portuguese

Government has launched

new subsidised and

guaranteed Credit Lines,

under the management of

PME Investimentos,

exclusively financed through

national funds. By the end

of June 2013, these Credit

Lines reached 62,000

companies, responsible for

approximately 850,000 jobs.

Evolution of the Credit Lines

2008

PME Investe IPME Investe II

2009

PME Investe IIIPME Investe IV

2010

PME Investe VPME Investe VIQREN InvestePME Investe - Aditamento

2012

PME Crescimento

2013

PME Crescimento 2013

2008

1.267 M€

2009

4.821 M€

2010

7.690 M€

2011

8.221 M€

2012

9.777 M€

June

2013

10.583 M€

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Contacts

Carlos de CastroVice-President and CEO

[email protected]

Telephone numbers:(+351) 21 799 42 74(+351) 21 799 42 75

Contacts