Semi-Annual Report 2006
KFW BANKENGRUPPE. Development of operations. In the first half of 2006 the volume of financing commitments made by KfW Bankengruppe was, at EUR 33.3 billion, 45 % higher than in the first half of last year. A particularly strong contribution to this pleasing increase came, as in the first quarter, from KfW Förderbank with its housing rehabilitation and ecological construction programmes, which are part of the promotional initiative Housing, Environment, Growth and enjoy interest rates that are kept low by federal budget funds. To refer to the key figures as you read, please fold out the next page.
KEY FIGURES. In EUR billion 2005 2005 1.1 30.6 2006 1.1 30.6 I. KfW Mittelstandsbank 15.5 6.0 8.6 Loan financing 10.7 4.2 4.6 of which Entrepreneur Loan 4.8 2.5 3.3 Global loans to trade and industry 5.4 1.4 1.1 Mezzanine financing 0.6 0.3 1.3 Equity financing 0.3 0.1 0.1 Securitisations 4.0 1.4 2.6 II. KfW Förderbank 38.7 11.4 17.2 Housing investments 10.9 4.5 8.9 of which Global loans to the housing industry 2.0 0.5 0.2 Education 0.9 0.4 0.6 Municipal infrastructure 2.8 0.8 1.7 Environmental protection investments 4.2 1.5 2.5 Global credit lines for promotional institutions in the federal states 3.6 2.6 3.1 Securitisations 16.3 1.5 0.4 Investment finance in Germany and Europe 54.2 17.4 25.8 III. KfW IPEX-Bank 12.1 4.8 6.6 Industry, telecommunications 4.9 1.9 2.4 Power, renewables and water 1.2 0.5 1.5 Transport and transport infrastructure 5.6 2.4 2.7 Other (AKA export loans, grants) 0.4 0.1 0.0 IV. KfW Entwicklungsbank 1.9 0.5 0.6 V. DEG 0.7 0.3 0.4 Total financing volume 68.9 22.9 33.3 Environmental and climate protection 1 7.0 2.8 7.6 Funds raised 50.6 28.7 35.0 Balance sheet total 341 350 363 Differences in the totals are due to rounding. 1 Included in the total financing volume as general promotional business by KfW Mittelstandsbank and KfW Förderbank.
KFW MITTELSTANDSBANK. In the first six months of 2006 KfW Mittelstandsbank recorded new commitments of EUR 8.6 billion, an increase of more than 40 % compared with the same period last year. The increase is due to a higher securitisation volume as well as to the higher demand for promotional loans and mezzanine financing products. Increase in investment activity and higher demand for loans. The generally positive development of investment activity in Germany is also confirmed by the KfW Investment Barometer, which forecasts a 4.3 % increase in total investments in 2006 as compared with the previous year. This is reflected in a perceptible increase in the demand for promotional loans. In the first half of 2006 the volume of new lending to business start-ups, self-employed professionals and SMEs was 9.5 % up on the same period last year, reaching EUR 4.6 billion. New commitments of EUR 3.3 billion in the KfW Entrepreneur Loan Programme meant that this basic lending programme alone accounted for 30 % of the new lending volume. Mezzanine financing for innovations. The ERP Innovation Programme that was modified at the end of last year has proved to be a resounding success in 2006. Commitments total more than one billion euros available to promote innovation in the SME sector. This took total mezzanine financing to EUR 1.3 billion. 2
Equity finance new approaches to support the transfer of research results. The promotional programmes in KfW s equity finance segment reported commitments of EUR 98 million, below the previous year s result of EUR 125 million. In particular, there were slight declines in the later-stage segment while early-stage financing increased slightly. Fund activities in the early-stage segment also include a spin-off fund which was newly established at the end of 2005 and is to support the practical application of the results of research carried out by the Fraunhofer-Gesellschaft, in which KfW is a cornerstone investor. Further private investors were attracted and, as a result, the fund now has a capital of more than EUR 35 million and has made its first investments. This approach will be pursued further. 3
KFW FÖRDERBANK. At KfW Förderbank, which got off to a very good start in 2006, the outstanding growth of the first few months of the year continued in the second quarter. The 51% year-on-year increase in the volume of financing to EUR 17.2 billion is mainly due to the surge in commitments in the housing programmes. High demand in the promotional initiative Housing, Environment, Growth. The fact that loan commitments for housing investment doubled in the first half of 2006 compared with the same period in 2005 was due to the high demand for loans under the promotional initiative Housing, Environment, Growth, which was launched by the federal government and KfW in February 2006. In the CO 2 Building Rehabilitation Programme, for example, marked improvements in lending conditions led to loan commitments that, at EUR 2.3 billion, were four times as high as in the first half of 2005. This points to the considerable incentive provided by promotional loans for private, commercial and communal home owners to invest in energy saving and climate protection. Education finance successful start to the KfW Student Loan. Since the KfW Student Loan was launched on 1 April 2006, 6,000 applications for a total of EUR 150 million have been approved. The loans are intended to help students in their first course of study at a German institute of higher education to cover their living expenses. Irrespective of parental income or assets and the subject studied, 4
KfW Förderbank provides up to EUR 650 a month, usually for a period of ten semesters. At present 1,455 sales partners credit institutions and student services can accept applications for the Student Loan. In the first half of 2006, KfW Förderbank approved, in total, around 38,000 loans amounting to EUR 560 million for investment in initial and advanced training under its Education Loan, BAföG Bank Loan, Meister-BAföG and Student Loan Programmes. Infrastructure development lowering the municipal interest burden. At EUR 1.7 billion, loan commitments to promote investment in the municipal infrastructure were more than twice as high in the first half of 2006 as in the same period last year. A substantial contribution was made by the marked improvement in interest terms and conditions in the KfW programmes. Of the total loan volume, EUR 906 million was accounted for by municipal loans to promote municipal investment, EUR 415 million by the Social Investment Programme, which is intended to promote investment by non-profit organisations, and EUR 379 million by the Municipal Investment Programme with the objective of promoting investment by municipal enterprises. Dynamic growth in environmental promotion. In the first half of 2006, loan commitments for environmental investment amounted to EUR 2.5 billion, 63 % up on the same period last year. 5
The cause of this upward movement is, in particular, the increase in commitment in the commercial environmental protection programmes. Compared with the first half of 2005, the volume of commitments in the KfW Environmental Protection Programme was increased by 58 % and the volume in the ERP Environmental Protection and Energy Saving Programme by as much as 107 %. Carbon Fund successful first tranche. The first tranche of the KfW Carbon Fund was closed successfully on 30 April 2006. A total of 26 enterprises and institutions from Germany and abroad invested EUR 83.9 million in the purchase programme for certificates from the project-based mechanisms of the Kyoto Protocol. High demand meant that the volume originally targeted for the Fund was exceeded by nearly 70 %. Owing to the ongoing very positive response, the launch of a second Carbon Fund tranche is being prepared. In the meantime, KfW has concluded three purchase agreements (ERPAs) and two preliminary agreements (LoIs), from which around 2.5 million certificates should be channelled into the Fund by 2012. The agreements are worth a total of approximately EUR 24 million. Just under 30 % of the Fund volume has thus already been covered. Another 26 promising projects are currently in the project pipeline. Of the projects, 65 % are in the area of renewable energies (wind, water and biomass). The main regional focus (58 %) is on Asia (particularly India and China), followed by Latin America and Africa with 19 % each. 6
KFW IPEX-BANK. Projects boost renewable energies. In the first half of 2006 an increase of 37.5 % in new business compared with the same period in 2005 was recorded at KfW IPEX-Bank, taking it to EUR 6.6 billion. KfW IPEX-Bank concluded 39 % of new business in Germany and around 61% abroad. From the sectoral perspective, in the field of domestic project and corporate financing sizeable loans were granted to industrial enterprises, particularly in the manufacturing sector as well as in energy and the environment. Foreign business was dominated by shipping, road and rail and basic industries. Interesting individual projects in recent months concern renewable energies. KfW IPEX-Bank has financed biomass power plants in Brazil as well as a biodiesel project in Mecklenburg-West Pomerania and one in Thuringia. 7
KFW ENTWICKLUNGSBANK AND DEG. Good governance means fair play. This is the title of the 2005 Annual Report published jointly by KfW Entwicklungsbank and DEG in the second quarter of 2006. The report focuses on the significance of good governance, i.e. responsible conduct by government and administrative bodies, corruption prevention, protection of property, participation by the local people in the political decision-making process and protection against arbitrary behaviour. Good governance is the fundamental prerequisite for a country s economic and social development and hence for the long-term success of development cooperation. The German federal government has already agreed on measures to promote democracy, the civil society and public administration with over 30 partner countries, most of which are in sub-saharan Africa and Latin America. KfW Entwicklungsbank is currently supporting far more than 800 ongoing projects which have good governance as the main or a secondary objective. The commitment of KfW and DEG also implements the policy objectives of German Development Cooperation to firmly establish good governance in the partner countries. More promotion. In the first half of 2006 KfW Entwicklungsbank committed EUR 554 million to promoting developing and transition countries, around 17 % more funds than in the same period in 2005. The KfW subsidiary DEG also provided EUR 384 million for investment by the private sector in developing and transition countries, representing an increase of around 24 %. 8
FUNDING AND PRIVATISATION ACTIVITIES. In the first half of 2006 KfW raised EUR 35 billion in the international capital markets, thus covering about two-thirds of the total funding volume of EUR 50 to 55 billion planned for the year as a whole. New benchmark bonds and diversified currency portfolios. KfW s benchmark programmes got off to a particularly successful start. In January KfW placed its first 15-year euro benchmark bond in the market; the issue volume was EUR 5 billion. With this bond KfW extended the maturity range for liquid bonds denominated in euro until 2021. In the USD programme KfW also issued a long-term bond with a maturity of 10 years and a volume of USD 2 billion. Altogether, in the first six months of 2006 KfW issued five bonds for a total of EUR 16.4 billion in the two benchmark programmes, which thus accounted for 47 % of the total funding volume. With regard to other public bonds, which accounted for 42 % of the funds raised, KfW observed a growing trend among investors toward greater currency diversification in their portfolios. In response to this demand KfW issued bonds denominated in Botswana pula, Egyptian pounds, new Romanian leu and Malaysian ringgit for the first time. Private placements, the third pillar of KfW s long-term funding, contributed 11% of the funding volume. 9
The core currency of KfW s funding in the first half of 2006 was again the euro, which accounted for 40 %, followed by the US dollar (32 %) and pounds sterling (11%). With a percentage of 17 %, the other 19 issue currencies contributed roughly the same share as in 2005 as a whole. Privatisation activities sale of shares in Deutsche Telekom AG to the US financial investor Blackstone. With the sale of shares in Deutsche Telekom AG worth EUR 2.68 billion (191.7 million shares or 4.5 % of the total share capital of Deutsche Telekom AG) to Blackstone in April this year, KfW directly involved a private equity investor in its privatisation activities for the first time. Blackstone s intention is to contribute its strength as a leading telecommunications and media investment company. Market response to the transaction was extremely positive. At the same time the transaction helped to redefine the role of private equity companies also as minority shareholders in the German private equity market. As a result of the share placement the number of Deutsche Telekom shares held by KfW decreased to some 735.7 million shares (16.6 %). Now the federal government and KfW together hold about 31.2 % of the share capital of Deutsche Telekom AG. At the same time the free float increased to approximately 68.8 %. 10
180472 KfW Bankengruppe Palmengartenstrasse 5 9, 60325 Frankfurt am Main, Germany Telephone +49 69 7431-0, Fax +49 69 7431-2944, infocenter@kfw.de, www.kfw.de