September 19, 2019 / 3:15 PM / in 5 months

Czech development fund, backed by banks, will have $300 million in initial funds

PRAGUE (Reuters) - A Czech national development fund, backed by the country’s four biggest banks, should get underway by the middle of 2020 and will have initial financing of 7 billion crowns ($299.27 million/239.57 million pounds), Industry Minister Karel Havlicek said on Thursday.

Czech Crown coins and notes are seen in this picture illustration taken April 1, 2017. REUTERS/David W Cerny/Illustration

Banks signed a memorandum of cooperation on Thursday on launching the fund, which will be aimed at investing into projects in infrastructure, education and healthcare, using leverage to multiply the initial funding by a factor of five.

Prime Minister Andrej Babis said he expected other companies, not just banks, would join the fund.

He had announced the fund in May as a counter-move to appeals by his government partner the Social Democrats’ demands to introduce a bank sector tax to raise funds for the budget.

Banks Ceska Sporitelna, owned by Austria’s Erste Group Bank (ERST.VI); KBC’s (KBC.BR) Czech unit CSOB; Societe Generale’s Komercni Banka (BKOM.PR); and UniCredit’s (CRDI.MI) Czech branch will take part.

The fund will be owned by CMZRB, a state development bank. Further contributions in the following years will be voluntary, as was the initial funding, Havlicek said.

The fund’s investments should bring long-term returns, he said.

The central European country, whose government debt is at just over 30% gross domestic product, well below the European Union average, has been slower than many neighbours in building highways and new rail connections, in part due to funding but also due to lengthy administrative delays.

It will face a drop in the volume of development subsidies form the EU in the coming years due to Brexit and rising national wealth. The national fund could be one way of replacing those funds.

The fund will be licensed by the Czech central bank and operate by offering debt and guarantee products for projects.

Reporting by Robert Muller and Jan Lopatka, editing by Pritha Sarkar

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