While venture capital financing deteriorated, private equity funds further reduced their direction to Romania, and IPOs were blocked, banks persisted in granting financing to companies, where we now see a shift from lending in euros to financing in lei.
Private equity, a decrease most likely
2023 was a year with an unstable macroeconomic context, and thus the level of IPOs was lower. The hopes of Romanian companies concentrated on new private equity and venture capital funds formed with backing from EIF, but the funds haven’t started investing yet, but that will happen from 2024.
Economic conditions deteriorated in 2023 as the war in Ukraine continued, plus the effects of inflation on purchases, supply chains, and interest rates remained visible. Pessimism was even more robust, and private equity investors did not expect an improvement in the general economic climate.
At the level of 2023, the number of financing granted by investment funds decreased. After last year, 76 companies from South-East Europe obtained financing in the total amount of 1.227 billion euros from PE funds. Two transactions stood out this year due to their complexity: the investment fund Value4Capital (V4C) bought the Clarfon store chain, which has over 50 units in Romania, and Integral Venture Partners, a private equity and growth equity fund focused on Europe Central and Eastern, took over a majority stake in the O’Fresh brand, supplier of vending, coffee and water services for business customers.
Venture capital
Regarding venture capital, the total annual value for 2023 is expected to lag seriously in Romania behind the figures from earlier years. Venture capital deal value in Europe for the first nine months of 2023 was 43.6 billion euros, meaning a 49.1 percent drop compared to the same period in 2022. The trend of decline is also valid in Romania, and this was anticipated because of the new economic realities but also because the funds focused this year mainly on the refinancing of businesses already in their portfolios.
Bank lending
In the first part of the year 2023, companies continued to stay away from expensive loans in lei and focused more on financing in euros. However, the dynamics in foreign currency are outside the second semester at the level of the first half of the year. Some improvement was seen in the summer, when the value of financing increased by 50%. The recovery trend has also intensified this autumn, and it remains to be seen whether it will be maintained throughout the fourth quarter. For example, banks granted companies new loans of 4.2 billion lei, up 50% over last year’s level, according to the National Bank of Romania. The increase in financing in lei came in the context in which interest rates on corporate loans in lei have decreased in recent months. For example, Pet Star Holding, one of the most important producers of PET preforms in Romania and the Balkans area, in terms of production volume and variety of formats, took a financing of around 4 million euros.
The good news is that the European Investment Fund (EIF) has signed agreements with five local banks to support Romanian SMEs through direct guarantees of one billion euros. Guarantees from FEI allow partner banks to offer better financing terms, such as lower interest rates, collateral requirements, and reduced down payment requirements. In addition, thanks to the guarantees from the EIF, banks can offer longer maturities, larger financing volumes, and support segments that would otherwise be excluded, such as start-ups, which would not have been targeted in the absence of the guarantee.
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Claudiu Vrînceanu – EEN adviser
