Ann: European Investment Bank proposed EUR500m ($825m) financing, page-28

I have worked in a similar institution as the EIB and I can provide my 5 cents on the financing process and what this publication means.

The EIB is the main EU multilateral development lender, which essentially means that they are to support financially projects that align with EU policy and strategy with public money (although its public debt for the most part). As such, these institutions have a double gate process to approve financing.

The first gate is the internal institution approval (this is what Vulcan just passed). This gate is approved only by senior EIB employees and strongly based on the business and commercial aspects of the project. The project is presented once the investment team think they have a robust case after doing an assessment. The decision to approve a project or not at this stage is absolutely crucial and there is a high chance of failing the approval process (around 50% from my experience).

The second gate is to go to the Investment Committee, which is formed by mostly political actors. The role of the committee is not to assess the business and commercial viability of the project but to ensure alignment with the policies and strategies of the EU in this case. The EIB employees will present the project to the committee and in my experience, 95% of the projects go through this stage.

Another important aspect is that the EIB will typically act as a catalyst for other lenders. This means that they will take the junior tranches of the debt (less protection in case of bankruptcy) and allow for other private lenders to enter the deal with a higher margin of safety. This will also signify a lower overall interest rate.

And last but the most important aspect to me. This kind of deal is never done in isolation. The EIB will only lend the 500m if Vulcan can ensure the rest of the debt and equity needed for the CAPEX requirements. This means that they they need to secure financing from other public and private institutions and very importantly fulfil the equity requirements imposed by the lenders. To put into perspective, Vulcan needs around 300m in equity to borrow 900m and currently has a bit more than 100m so it needs around 200m more. All pieces need to fall into place and be agreed so that they can all go ahead at the same time. This announcement is the first and probably most important piece, but its not done yet.

The best case scenario would be that a similar institution provides either a grant or most likely an equity investment at project level, for example from the new German battery fund. This would be of course completed with private equity investments and probably with a small equity raise with new shares.
The worst case is that Vulcan cannot secure any equity at project level and is forced to raise 200m in equity almost doubling the amount of shares.

Personally, I think that if Vulcan is able to prove the viability of their process, the equity will flow and subsequently the debt will be granted.