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Central/Eastern Europe: Danish Agency Seeks To Invest In Small Businesses

Copenhagen, 5 December 1996 (RFE/RL) -- The Danish Investment Fund for Central and Eastern Europe has invested hundreds of millions of dollars in that region in recent years -- and now it's looking for more small and medium-size businesses to invest in.

An RFE/RL correspondent quotes the fund's deputy managing director, Dan Jensen, as saying that between 1989 and last year, his agency invested a total of $339 million in 141 joint venture projects in 11 countries.

Jensen said the fund creates joint ventures mostly in sectors where Danish industry has traditionally been strong, such as medicines, beer brewing, telecommunications and environmental projects.

Created just months after the fall of the Berlin Wall in 1989, the Danish Investment Fund ranks among the top 15 foreign investors in the former communist states. Primarily, its sources come from Danish government revenue, but private businesses in Denmark have in recent years increased their capital share.

The biggest market for these investments is Poland (with 62 joint enterprises), followed by the Czech Republic (18), Russia (13), Lithuania (12) and Latvia (11). At the other end are Belarus and Croatia (2 each) and the Slovak Republic (1).

Last year, among the major investments were the opening of joint ventures such as Air Baltic Corporation (an air carrier in Latvia), Cooperative Krotoszyn Dairy (Poland), Panonska Pivovara (a brewery in Croatia, with the participation of Carlsberg), and Tervel UMS (a sunflower oil extraction plant in Bulgaria).

But apart from large projects with the participation of major Danish and Nordic concerns like Carlsberg, Jensen said the fund increasingly aims to support small and medium size businesses in Central and Eastern Europe.

Last year the fund received additional Danish government funds to estabish a separate investment facility, the Environmental Investment Fund for Central and Eastern Europe. Jensen told RFE that along with the money came new guidelines for environmental safety and standards in joint ventures in the region. The ultimate aim of this is to bring all production standards abroad up to the Danish level, one of the highest in the world.

The fund works in close cooperation with major western financial institutions such as the European Bank for Reconstruction and Development (EBRD), the Nordic Investment Bank (NIB), and the Nordic Environmental Financial Corporation (NEFCO).

According to Jensen, the philosophy behind the fund's activities is a mixture of idealism and pragmatism: by making short and long-term investments in Eastern Europe, it directly promotes the development of a free market and democracy. Once stable capitalist forces are in operation, the Danish economy will start benefiting by increasing exports and by further investment.

As an independent body governed by Danish government regulations, the fund participates as a shareholder in private sector projects. It provides up to 30% of the total share capital which if things go smoothly it later offers for sale.

As such, it welcomes proposals for the establishment of new ventures.

The main condition for new investment, as Jensen puts it, is that the recipient companies must be in a country experiencing a genuine political and economic reform process.

An initial approach to the fund must be made in writing either to its headquarters in Copenhagen or to its offices in Warsaw.

All investment proposals must be cleared "in principle" by the fund's Administrative Investment Committee and then presented for a decision by the Board of Directors. Once past this stage, a feasibility study on the proposal or on a pilot project is made. If this is satisfactory, the fund issues a legally-binding commitment that means not only assurance for financial backing but also a collateral for further financing and/or governmental approval in the host country.

Normally, loans will be granted by the fund for up to five years, but longer or shorter periods may be considered depending on the expected cash flow requirements of the project company.

The fund recommends its partners to put considerable effort into ensuring that shareholders' agreements take into consideration all relevant aspects of the projected cooperation, including the rules for settling future disputes.

A good shareholders' agreement can in itself prevent future disagreements which might otherwise be critical for the joint venture. The fund has great experience in this area and offers advice to interested parties.

The fund would expect the private sector partners to be responsible for the day-to-day operation and management of a project, but it would play an active role at board level when required by either party or by force major circumstances.

The Danish Investment Fund's headquarters is at: Bremerholm 4 DK-1069 Copenhagen K Fax: (+45) 33 32 25 24

The fund's offices in Poland are at: Aleje Niepodleglosci188b Room 362-365 PL-00-925 Warsaw Poland Fax: (+48) 39 12 23 59