Polish International Development Fund – a recap of 2023
The year 2023 was a special year for the Polish International Development Fund team. On the one hand, we continued to cooperate with our existing partners within the framework of the Polish International Development Fund, for which the investment period ended. On the other hand, we ere simultaneously working on the launch of the new Polish International Development Fund 2 and the implementation of the first transactions under the programme. We offer solutions for Polish companies that want to expand their business in foreign markets. The end of the year is the perfect opportunity to take stock of the achievements and results, but also to outline plans for the coming months.
New investment perspective
Internationalisation has a positive impact on the productivity of the domestic economy and ultimately on the prosperity of the country as a whole. Foreign direct investment is an important tool for international economic integration and an engine for growth. Polish companies have a huge potential for growth in foreign markets, which unfortunately is not fully exploited. One of the barriers is access to capital. Seeing the growing interest in expansion, in the spring we set up a second fund, Polish International Development Fund 2, which continues the mission of Polish International Development Fund, responding to the needs of Polish entrepreneurs who are looking for growth opportunities on foreign markets. The target capitalisation of the fund will be PLN 600 million. Our operations are based on the model we developed during the several years of operation of the first Fund. We offer a flexible approach in terms of the form of long-term financing for foreign investments, both greenfield and brownfield.
A few months after the formal launch of the fund, we already have the first projects underway. At the end of November and beginning of December, we finalised negotiations with our two partners, which resulted in the signing of investment agreements for projects in Germany (implemented by Enprom) and the USA (implemented by SECO/Warwick).
Time to take stock
Last year also saw the completion of two projects implemented with funds from the Polish International Development Fund. In April, Elemental Holding bought back a 32% stake in the German company Recat GmbH from the Fund. In October, in turn, the group acquired 49% of the shares of Elemental USA Inc. from funds managed by PFR TFI, including the Polish International Development Fund. The settlement of the financing is the final stage of the investment process for the 2 projects and a good time to take stock of Elemental Holding's cooperation with the Polish International Development Fund, which started in 2017. The first joint project involved the acquisition of a Lithuanian company. At that time, the Fund purchased 49% of the shares in the group's subsidiary UAB “EMP recycling”, which allowed Elemental Holding to pursue further acquisitions and organic growth. Cooperation on the Lithuanian project continues. The next joint project involved the German company Recat. This investment has enabled the Elemental group to increase its scale of operations in the market for the recycling of used automotive catalytic converters in Western Europe. In 2019, the fund extended its cooperation with its Polish partner by co-financing an investment in the US company PGM of Texas, in which Elemental Holding jointly acquired a 66% stake with the fund. This was FEZ's first investment in North America. The next two investments, made in 2021, were in Maryland Core and Legend Smelting and Recycling. Acquisitions of further companies have made the Elemental Group one of the largest Polish investors in the United States. These transactions were a key stage in the implementation of a long-term internationalisation strategy.
Looking ahead to the future
As we summarise the last 12 months, we are simultaneously making plans for the coming year. What will 2024 bring? On the one hand, forecasts from analysts and international financial institutions indicate that we should prepare for uncertainty that will remain with us for the foreseeable future. On the other hand, the experience of the last three years shows that even in such a dynamic economic and geopolitical environment, the appetite of Polish entrepreneurs to expand outside Poland remains strong. . In an interview with the CIS portal, Piotr Kuba, board member for investment at PFR TFI, recently highlighted that,
"the global economy is still recovering from the pandemic and crisis caused by Russia's invasion of Ukraine. In addition, geopolitical risks have been further exacerbated this year by the conflict in the Middle East. According to experts, the global economy remains resilient, but it is too early to talk about a strong recovery, which is why the International Monetary Fund's current forecasts for global growth remain quite cautious. The slowdown is more evident in developed economies than in emerging markets. However, it does not mean that entrepreneurs will turn away from foreign investment. This is particularly true for those companies that have built a strong financial base and are now using surpluses to invest. The best time to buy is when prices are at their lowest, which is when the situation in the economy is more difficult. In terms of M&A deals, analysts expect catalysts to emerge from the slowdown, encouraging more activity in 2024."
We have a busy year ahead. We are currently conducting negotiations on more than a dozen projects, which are at varying levels of progress. We expect to be able to share further information on new transactions over the coming months.
Sources:
A. Filippetti, M. Frenz, The Role of Internationalization as a Determinant of Innovation Performance: An Analysis of 42 Countries,
World Association of Investment Promotion Agencies, Outward FDI and Sustainable Development in Home Countries.