Private equity funds intend to help banks with theirnon-performing loans, by financing the companies that are havingtrouble repaying their credits, if lenders agree to thisproposal.
"We believe we can do business together with banks. We will meetwith the representatives of six of the biggest commercial banks inRomania, to propose a partnership: help with some capital thosecompanies that are unable to repay their loans and risk goinginsolvent or bankrupt," said Robert Luke, chairman of South EasternEurope's Private Equity Association (SEEPEA), which comprises thebiggest funds operating on the local market.
IFC, the World Bank's private sector investment arm, hasrecently announced its willingness to help banks process bad debt,by getting involved through stakes up to 20% in private equityfunds that will focus on this business, if lenders think they needsuch support.
"The problem is banks refuse to accept they are having troublewith loans and prefer to reschedule the credits hoping thatcompanies will come up with the money," Luke says.
Private equity funds are those funds whose capital was privatelyraised. Unlike traditional financing solutions (loans from banks),they do not only assist a company with capital but also getinvolved in its management in order to boost the business andcreate added value, getting part of the share capital of thecompany in exchange.
Since many of the funds operating on the local market such asAdvent, Enterprise Investors and GED raised their capital beforethe onset of the crisis, they still have cash available for newinvestments. The partnership that SEEPEA proposes to banks comes ata time when more and more companies are falling behind in theirloan payments and choose to file for insolvency to keep creditorsat bay for a while.
Companies do not only need money to pay off their debt but alsoprofessional management, and banks, which are at their first majorcrisis on the local market, do not have the expertise to helpcompanies get back on track, Luke says. The same goes for localentrepreneurs whose businesses went through almost a decade ofeconomic growth and increasingly flexible access to bank loans.
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