Thursday February 29, 2024

EIB considering capital hike, changes to shareholding post Brexit

September 09, 2018

VIENNA: The European Investment Bank (EIB), owned by European Union governments, is considering a capital increase to allow some of its shareholders to increase their stake after Britain pulls out of the EU and the EIB in March next year, EU officials said.

Britain´s exit will mean that the bank will lose 3.5 billion euros ($4.04 billion) of British paid-in capital.

That money will be replenished by other existing

shareholders on a proportional basis, one EU official said.

The world´s largest multilateral borrower and lender, the EIB relies on its AAA credit rating to borrow on the market and then lend on for investment projects.

It works closely with other EU institutions to implement EU policy. Replacing the UK capital after Brexit will be important for the bank to keep its top credit rating.

Separately, the bank is working on a plan to raise capital to allow some countries, like Poland, to raise their holding.

"Poland has been vocal that it wants to increase its stake in the EIB, because the size of its economy has grown substantially since it entered the European Union in 2004," the official said.

The stake that each EU country has in the European Investment Bank is based on its economic weight within the bloc on the basis of its gross domestic product (GDP) at the time of its accession.

Poland entered the EU in 2004 with a GDP of around $217 billion, but by last year its economy had almost tripled in size to around $614 billion.

It is therefore bigger than Sweden, Denmark, Belgium or Austria, all of which have bigger stakes in the EIB.

The biggest shareholders in the EIB, apart from Britain, are Germany, France, Italy and Spain.

Because changes to EIB capital are rare, and usually happen only at the time when the EU accepts a new member, Poland wants to use the change forced by Brexit to review its stake, EU officials said.

Spain is also interested in raising its holding, they said, although it was not clear how much capital on top of that required by the Brexit rejig it was willing to contribute.

"There are two or three other countries from central and eastern Europe and the south who also want to increase their stake," the EU official said.

Poland has declared it was ready to inject up to 10 billion euros into the EIB, officials said. In exchange, it wants to secure the post of a permanent vice president at the bank.

EIB financing in Poland was 5.1 billion euros in 2017, making the country the fifth largest recipient of EIB loans last year.

The European Investment Bank is to prepare a simulation of the capital increase and its potential consequences for its rating for a meeting in Bucharest on September 17, officials said.

The bank now has 243.3 billion euros of capital, of which 21.7 billion is paid in. Most of its investment activity is in Europe but it is also a big investor around the world.