Investments and Investment Aims of the Three Sees Initiative Investment Fund | In Principle

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Investments and Investment Aims of the Three Sees Initiative Investment Fund

The Three Seas Initiative (“3SI”) is a regional cooperation initiative lunched in 2015 by presidents of Poland and Croatia. Currently, its members are the 13 member states situated between the Adriatic, Baltic, and Black Seas. In 2019, the Three Seas Initiative Investment Fund (“3SIIF”) was launched. It will invest in projects related to energy, transportation, and digital infrastructure to strengthen economic ties and reduce development disparities within the region. Fund members committed to invest at least EUR 913 million.

The Three Seas Initiative – a brief history

Establishment of the 3SI is often linked with an influential report entitled “Completing Europe. From the North-South Corridor to Energy, Transportation, and Telecommunications Union”[1] published by the Atlantic Council (an American think tank) in 2014 and prepared in cooperation with Central Europe Energy Partners (a lobby group representing the interests of energy and energy-intensive companies from the region) and Central & Eastern Europe Development Institute (a think tank tied to Kulczyk Investments – a major Polish conglomerate). The report highlighted the infrastructure gap between western and eastern members of the European Union. Most notably, it euphemized the need to supplement the “east-west” axis of integration with development of a “North-South Corridor”. The North-South Corridor should link Central European states with energy, transport and digital infrastructure. Gas pipelines (together with interconnectors), an intermodal highway connecting Gdańsk (Poland) and southern Italy (the “Baltic-Adriatic Corridor”) and broadband telecommunication connections are to constitute the backbone of the North-South Corridor. The authors claim that the development of the North-South Corridor will contribute to energy security, economic development and resilience of the region as well as help achieve Europe’s climate goals. Due to the authors’ affiliation and clear guidelines, the report was widely cited and commented in Poland and other countries of the region.

The first 3SI summit was held on 25-26 August 2016 in Dubrovnik, Croatia.  Representatives and heads of 12 states (Austria, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, Slovenia) signed a joint declaration[2] and endorsed “The Three Seas Initiative as an informal platform for securing political support and decisive action on specific cross-border and macro-regional projects of strategic importance to the States involved in energy, transportation, digital communication and economic sectors in Central and Eastern Europe”. Ukraine and Moldova become an official partner of the 3SI and Greece joined the initiative in September 2023.

3SI members gather at annual high-level summits. At a summit in Warsaw in July 2017, they established a Three Seas Initiative Business Forum to be held jointly with 3SI annual summits. The Business Forum is to facilitate contacts between private interests willing to in invest in projects associated with 3SI.          

Establishment of the Three Sees Investment Fund

The 3SIIF is a key instrument for cooperation between the the 3SI countries. Its main initiator was the Polish state development bank - Bank Gospodarstwa Krajowego (“BGK”) which aims to manage European programmes and distribute European funds in Poland.

The 3SIIF was officially founded in 2019 by the BGK and EximBank, a Romanian bank that supports and promotes business initiatives in Romania. It was Poland and Romania that were most committed to creating a fund within the 3SI framework. It was decided that the 3SIIF would be created under Luxembourg law[3]. Currently, in addition to the founders, fund members include the Lithuanian financial institution Altum, which aims to support initiatives with public funds through measures such as loans, bank guarantees or investments in venture capital funds, Rahandusministeerium - the Estonian Ministry of Finance, SID Banka - a 100% state-owned export development and promotion bank in the Republic of Slovenia, EXIM - a Hungarian bank and insurer focusing on supporting Hungarian companies in international development, Bulgarian Development Bank (BDB) - an approx. 99% state-owned Bulgarian bank that supports small and medium-sized enterprises by providing financing, Hrvatska banka za obnovu i razvitak (HBOR) - a Croatian bank established primarily to finance the reconstruction of the Croatian economy and Investicijų ir verslo garantijos (INVEGA) - a Lithuanian financial institution aimed at providing financial services[4].

Amber Fund Management Limited (“Amber”), a UK company that is part of the Amber Infrastructure group, has been appointed as the fund's exclusive investment adviser. The group has experience in managing investments in the energy, transport and digital sectors, among others. The Amber Group has an international presence with around 150 infrastructure investment professionals in North America, Australia and Europe. Assets under fund management are estimated to be worth approximately £9 billion[5].

Each investor joining the 3SIIF is required to sign a share subscription agreement for shares of one of the three categories (A-C). The characteristics of each share are described in a confidential memorandum. The 3SIIF Articles of Association allow declaration of individual investor default in cases specified in the Articles of Association. If an investor is declared in default and the breach causing the default is not remedied, the relevant investor and its shares will have their voting rights suspended, will be deprived of the right to dividends or distributions until payment is made, and 3SIIF will be entitled, inter alia, to: (i) repurchase shares of the defaulting investor (ii) require other investors to contribute additional amounts, (iii) purchase shares of the defaulting investor for offer to a third party, and (iv) pursue any available legal remedies against the defaulting investor to collect any and all commitments due from the defaulting investor in accordance with the procedure described in the Articles of Association.

In 2022, the United States International Development Finance Corporation (DFC), a US development institution with more than $37 billion in assets under its management, and the 3SIIF entered into a term sheet under which the DFC will provide up to $300 million in financing to the 3SIIF, representing a 30% stake in the 3SIIF. The funds are intended to support investment in transport, energy and digitalisation in the three seas region. The terms of the agreement provide for an increase in DFC's commitment to $1 billion in the event of an increase in the value of the investment to approximately $3.4 billion, thus ensuring that DFC retains its share in the 3SIIF at its original 30% commitment level[6].

According to publicly available information, total capital invested in the 3SIIF amounts to EUR 1.3 billion with BGK as the largest investor committing EUR 750 million.

Current Commitments and Investment Policy

The 3SIIF's first investment was in November 2020. The fund acquired 100% of shares in Cargounit, the largest independent locomotive leasing company in Poland and the sixth largest rolling stock company in Europe. According to the 3SIIF, the acquisition of Cargounit, which has a broad customer base, will allow further expansion into the European market[7].

The second 3SIIF investment focused on the Digital Infrastructure sector. In December 2020, 3SIIF acquired a majority stake in Greenergy Data Center, an Estonian company building data centres in the Three Seas region to harness growing storage and connectivity needs of enterprises and consumers[8]. Greenergy's aim is to build high-end data centres in coming years, and the first of these has been built in Estonia.

The 3SIIF's third consecutive and simultaneously first investment in the energy sector was the acquisition of a majority stake in Enery, a renewable energy platform and independent power producer in 2021. As indicated by Amber, an investment advisor to the 3SIIF,-Enery owns an 85MW portfolio of operating solar generation assets in Bulgaria, the Czech Republic and Slovakia and has a significant development portfolio of over 2GW in a number of Three Seas countries, including Romania, Bulgaria, the Czech Republic, Slovakia and Austria[9].

The 3SIIF's most recent investment was the acquisition in 2022 of a minority stake in BMF, a significant port terminal operator with presence in Burgas (Bulgaria's largest port). 3SIIF points out that the port is a gateway connecting the south-eastern part of the Tri-Cities region with the rest of the world. The investment is part of a strategy to concentrate the region and connect its countries[10].

Some acts constituting the fund such as the Articles of Association are available in the public registers. The 3SIIF Articles of Association refer to the Investment Strategy, but this document was included in a confidential memorandum and access to it is not public. However, it can be inferred from speeches of 3SIIF representatives that the fund will invest in three strategic areas - transport, energy, digital infrastructure. This is also confirmed by already made investments Investment objectives[11].

Future Investments and Cooperation in the Three Sees Region

According to information presented at the 8th Summit in Bucharest in September 2023, the cumulative economic effect of existing3SIIF investments will reach €6bn. The BGK president points out that  an investment of €600bn in infrastructure is needed by 2030 to bridge the gap between Central & Eastern Europe and Western Europe. The BGK president states that both public and EU funds as well as those from private investors will be needed to finance projects in the region. Therefore, further investments by the 3SIIF and even more involvement in Three Seas region projects should be expected in the near future[12].

Hubert Bińkiewicz, Adam Strzelecki, Wardyński & Partners