44378 - DARP SPV EOS II

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Summary of Investment Information

Project Number

44378

Company Name

DARP SPV EOS II

Date SPI Disclosed

Jun 4, 2021

Country

Southern Europe Subregion

Region

Europe

Projected Board Date

Jul 7, 2021

Environmental Category

FI-2 - Limited

Status

Active

Last Updated Date

Nov 3, 2022

Department

Regional Industry - FIG - ECA

Industry

Financial Markets

Previous Events

Approved : Sep 17, 2021
Signed : Dec 30, 2021
Invested : Oct 28, 2022

Sector

Distressed Assets SPV

Project Description

The Project entails setting up a new regional facility in ECA, under IFC’s Distressed Assets Recovery Program (DARP), to acquire and resolve secured retail and SME/corporate non-performing loans (NPLs) and distressed real estate assets and real estate owned (REO) assets on the banks’ balance sheets (Target Assets), together with EOS Holding GmbH or a 100% subsidiary of it (EOS or the Sponsor). This facility will acquire Target Assets both in the primary and secondary distressed assets markets in Bosnia and Herzegovina (BiH), Croatia, Romania and Serbia (Target Markets). The proposed facility will have US$150 million equivalent in EUR in available committed capital, of which IFC will commit US$75 million and EOS will commit US$75 million (DARP NPL EOS II) (the Project).

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	75.0

Development Impact

The most significant, expected Project-level outcome is the offloading of secured retail and SME/corporate NPLs and REOs by financial institutions in the Target Markets, which will support their capital position by freeing up capital and increasing liquidity, and reduce large costs associated with the management of these assets. As a result, this will enhance the lending capacity of these financial institutions. In addition, IFC expects that the Project will help normalize secured retail and SME/corporate obligations, allowing individuals and businesses to resume to sustainable business operations and make them creditworthy again. Beyond the Project-level outcomes, IFC anticipates that the Project has the potential to highlight the importance of regional platforms and contribute towards the much needed increased activity in the distressed assets markets, and demonstrate the effectiveness of the NPL resolution regulatory ecosystem in BiH and Serbia to potential international investors.

IFC's additionality in the Project is both financial and non-financial. The financial additionality is in the form of IFC's planned commitment of US$75 million equivalent to the Regional SPV at a time of high demand for distressed assets investors capital, as NPLs are expected to increase across regions. The non-financial additionality is via (i) standard setting, as IFC will support EOS in establishing and implementing an E&S Management System (ESMS) for the facility to manage and mitigate E&S risks in the Target Markets; and (ii) catalyzing regulatory change, as the Project will test the upcoming new regulatory initiatives in BiH.

E&S Category Rationale / Risks and Mitigation

The project will support the acquisition and servicing of portfolios of NPLs through a Regional SPV created by IFC and EOS. The Target Assets are NPL exposures of retail clients, SME, low or medium-low risk middle market companies and Real Estate assets in BiH, Croatia, Romania, and Serbia, to be serviced by the EOS subsidiaries in each Target Market. The project is categorized as FI-2 in accordance with the 2012 IFC Sustainability Policy. The SPV will be required to screen out, or to procure to screen out, any activities that do not meet eligibility criteria, including but not limited to IFC Exclusion List activities, any coal-related activities, and borrowers involved in higher-risk business activities that may include: (i) involuntary resettlement, (ii) risk of adverse impacts on indigenous peoples, (iii) significant risks to or impacts on the environment, community health and safety, biodiversity, cultural heritage or (iv) significant occupational health and safety risks from the acquired portfolio.

The project's main risks & impacts are associated with the capacity to screen out projects which do not meet eligibility criteria, including higher risk transactions, and to develop and implement procedures to assess and monitor the E&S risks of the Target Assets. The main E&S risks of the supported sub-projects are expected to be of a medium nature and potentially related to labor and working conditions, health and safety, pollution prevention risks, community impacts, and risks associated with real estate assets.

Summary of Client Environmental and Social Management System (ESMS)

As part of the Project, the SPV will be required to develop an ESMS to assess and manage the E&S risks of its Target Assets in line with the IFC Exclusion List, National E&S laws and regulations and the IFC Performance Standards, as applicable. Given the nature of investments, there might be certain scenarios where limited access to information will be available for upfront due-diligence or limited leverage in implementation of E&S improvements. Therefore, the ESMS of the SPV will be required to include policy and procedures for screening, due-diligence and monitoring of the portfolio, including guidance for limited leverage scenarios as well as no-go scenarios, and an external communications mechanism in line with the IFC requirements. Assets with significant E&S risks will be excluded from SPV. The SPV will also be required to: i) have a dedicated E&S officer; ii) provide training; iii) implement an External Communication Mechanism (ECM); iv) submit the first three due diligences in line with IFC's requirements, conducted prior to investment in middle market companies, and v) provide a periodic report to IFC.

Contacts

For Inquiries About the Project, Contact

EOS Holding GmbH
Mr. Marwin Ramcke
Managing Director
+49 40 2850 1969
m.ramcke@eos-solutions.com
Steindamm 71, 20099 Hamburg, Germany
https://de.eos-solutions.com/en/

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Task Title & Description	Anticipated Completion Date
Nominate officers	08/15/2021
Establish SEMS	09/15/2021
Develop training plan	09/15/2021
Staff Training	12/14/2021

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