February 2010 -- The Europe and Central Asia region has been hit hard by the crisis, with private capital flows dwindling to $30 billion in 2009 compared to $258 billion in 2008. Tighter credit and tough economic conditions have put companies under pressure. Corporate default rates are forecast to rise to 20 percent or more. Dealing with distressed assets and companies is crucial for the rapid recovery and stabilization of a financial system. To help the region recover from the crisis, the IFC Debt and Asset Recovery Program (DARP) has announced an investment into the first restructuring fund dedicated to Central and Eastern Europe.
“Investing in and helping to turn around companies that are underperforming as a result of the financial crisis will support the region’s recovery and reduce job losses,” said IFC Executive Vice President and CEO Lars Thunell.
IFC and the European Bank for Reconstruction and Development (EBRD) became cornerstone investors to the Central and Eastern Europe (CEE) Special Situations Fund, each committing €17 million. CRG Capital, the Vienna-based asset management company which will manage the fund, has invested €2 million and expects to raise a total of €200 million from other investors.
“The CEE Special Situations Fund is expected to lay a solid foundation for the development of a robust market for non-performing loans (NPLs) and distressed assets,” said Jyrki Koskelo, Vice President, Europe and Central Asia, Latin America and the Caribbean, and Financial Markets Cluster.
The fund will focus on investing in medium-sized companies which are key contributors to employment in the region.
Geographically the fund will focus on countries, including Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Estonia, FYR Macedonia, Hungary, Latvia, Lithuania, Poland, Romania, Serbia, Slovakia, Slovenia, and Ukraine, among others.
To date, IFC has invested over $400 million in the distressed assets sector and mobilized an additional $175 million for 12 projects in China, Columbia, Czech Republic, Philippines, Russia, and Thailand. In China, IFC financed the first major asset management company NPL pool auction, helping acquire over 1,000 small and medium enterprise NPLs.
Building on this track record, DARP was launched by IFC during the World Bank Group Annual Meetings in October 2009. IFC will contribute up to $1.55 billion over three years and the program expects to mobilize an additional amount from other international finance institutions and private sector partners towards a total program size of $5 billion to $6 billion globally.