Dáil Éireann Debate, Thursday - 17 January 2013
10. Deputy Dara Calleary asked the Minister for Finance if he will ensure that the acquisition of near to maturity loans by the SME Credit Fund established recently by the National Pension Reserve Fund will be done in a manner that does not disadvantage small and medium enterprises; and if he will make a statement on the matter. [1996/13]
View answerAs part of the redeployment of the NPRF towards commercial investment in Ireland, the NPRF Commission announced on 9th January its commitment to a suite of three long term funds to provide equity, credit and restructuring investment to SME and mid-sized corporates. The SME funds represent a further step in the redeployment of the NPRF towards commercial investment in the Irish economy. By committing its resources as a cornerstone investor, the NPRF is seeking to act as catalyst for attracting additional investment from third-party investors into funds targeted at areas of strategic importance to the economy. One of the three funds is the SME Credit Fund, to be managed by BlueBay, a specialist credit manager wholly owned by the Royal Bank of Canada, and in respect of which a Letter of Intent has been signed. The objective is that this fund will be operational in the second quarter of 2013. Lending by the SME Credit Fund will be at competitive market rates with loan sizes ranging from €5 million to €50 million with an estimated average size of €15 million. Returns to investors in the fund will vary according to their position in the fund’s capital structure. The NPRF is solely an investor in the fund and plays no part whatsoever in any investment decisions by any of the funds.
The strategy of the SME Credit Fund will be a combination of origination of loans to SMEs and mid-sized corporates and acquisition of similar loans, particularly from banks that are exiting the Irish market who may be less willing to renew facilities. The SME Credit Fund may also acquire and refinance loans close to maturity where existing lenders are not willing to provide new lines of credit. This is an important aspect in improving the availability of debt financing to SMEs, ensuring that companies will continue to have access to long-term credit facilities, as financial institutions exiting the Irish market may not be prepared to provide such long-term finance or may do so only on a short-term basis with less favourable terms.
The SME Credit Fund’s objective is to provide long-term finance and to be fully repaid out of business cashflow and transactions. This will be a seven-year fund with a need to earn income over that period. There is no element within the SME Credit Fund strategy of acquiring distressed loans with a view to obtaining control.
The manner in which managers of funds invested in by the NPRF engage with the Irish market is extremely important to the NPRF. When making the decision to invest in a fund, the NPRF seeks to ensure that both a commercial return is generated and that the fund’s impact on the market and its client companies is a positive one over the long term.
Ultimately, if the SME credit fund is to build the necessary lending platform and scale to generate a commercial return over its seven-year life, it needs to be competitive and successful in the marketplace in developing a high quality book of loans. Therefore, its product and style of operation, both in loan origination and management of loans acquired, will need to be such that it is attractive, relative to the competition, to companies wishing to raise debt finance.
One of the key priorities of the Programme for Government is to ensure that an adequate pool of credit is available to fund SMEs in the real economy. The involvement of BlueBay Asset Management LLP, a wholly-owned subsidiary of Royal Bank of Canada (RBC), as manager of the SME Credit Fund increases lenders in the market.
Other initiatives to provide credit to SMEs includes setting up the SME Funding Consultation Committee, imposing lending targets on pillar banks, reviewing lending plans that the pillar banks are required to submit and liaising with the Credit Review Office. The credit stream available to SMEs also includes the Microenterprise Loan Scheme and the Partial Credit Guarantee Scheme.
