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Les Echos : This new debt fund ready to secure a billion for defense

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Sienna IM, affiliated with GBL, the holding company of the Frère and Desmarais families, wants to raise between 500 million and one billion euros for arms subcontractors. France Mutualiste and Matmut support the initiative.

The new Sienna Héphaïstos fund aims to grant more than thirty loans ranging from 5 to 25 million euros. (Sebastien Ortola/REA). Banks, and now… debt funds. Creditors are diving one after another into the deep end of rearming. Sienna IM, the investment company of GBL, the holding company of the Frère and Desmarais families, wants to raise 500 million to 1 billion euros to provide credit support to SMEs and mid-cap defense companies.

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« The era of peace dividends is behind us. The reality today is that the chain of subcontractors has suffered from the weakness of public procurement and, from there, from access to financing, emphasizes Thibault de Saint Priest, Secretary General of Sienna IM. By investing in private debt, we will be able to provide parallel support to that of banks for organic and external growth, working capital financing and investments. »

Supporters of the initiative

The manager has already been financing automotive and aeronautics suppliers such as Figeac Aero for around ten years and is now ready to grant 30 to 50 lines of credit for amounts ranging from 5 to 25 million euros to the defense sector. « Banks cannot always intervene due to exposure limits and do not always have the necessary reactivity in the event of a sudden paradigm shift», adds Laurent Dubois, managing director in charge of private debt at Sienna IM.

Several « sponsors » are supporting the initiative, named Sienna Hephaistos (referencing the Olympian blacksmith). « France Mutualiste (Malakoff Humanis Group), a mutual savings organization, will be among the first investors, with tangible financial support in response to the challenge of financing these players in the search for lasting peace » the fund’s promoters declare.

In addition to the affiliate of the number two in social protection organization, Matmut is ready to invest. « Debt funds meet the medium to long-term financing needs of this industry » says Nicolas Gomart, CEO of Matmut. « We are already invested in defense, and we will continue to be and to strengthen our position. » The European Investment Fund is also in the analysis phase.

Questions remain to be answered about compliance with environmental and social rules. « What we observe in real life is that companies in the BITD [defense industrial and technological base, editor’s note] do not work exclusively for defense and are engaged in ESG processes. And in terms of « governance », no industry is as more regulated than defense » responds Laurent Dubois. The fund’s strategy itself will be classified as « Article 8 » under the European SFDR regulation on sustainable finance.

The defense industry round table

Will the fund finance « lethal » weapons? Discussions are ongoing with the institutions on the fund’s regulations. However, the manager emphasizes, «the products of many companies are for both civil and military purposes (‘dual use’) ». In other words, the intended use of a piece of equipment is not always clear-cut. A drone, for example, can be used for either civil or defense purposes. For its components, a binary approach is even more difficult to apply.

As for the interpretation by certain rating agencies on the potentially non-« sustainable » nature of the debts that would be issued, « they do not have a moral authority over European companies » he says.

The agency Morningstar DBRS even sees defense financing as a real opportunity for credit funds. « There is a financing gap for European SMEs in the defense sector. They have difficulties not only in accessing financing, but also in having bank accounts » explained Arnaud Journois, vice president of the agency, during the publication of a study on the subject last summer.

Sienna IM’s objective is to seal an initial closing of 250 million euros by June, enabling it to invest, and reach its upper target by the end of the year or early 2026.

In addition to the discussions held since spring 2024 with these institutional investors, Thibault de Saint Priest and Laurent Dubois explain that they have carried out a great deal of work with the major contractors that receive contracts from the Directorate General of Armaments (KNDS, Airbus, Safran, Naval, MBDA, Thales, Nexter and Dassault) and then distribute them to subcontractors. A 10% portion of the raised funds will be open for subscription to them alongside insurers

New financing methods

When asked, Thales stated that it had invested  « exceptionally » in the first ACE Aéro Partenaires fund following Covid, and, in a « very limited manner », in the Quantonation fund for quantum technologies which are of ”strategic interest to the group », does not intend to intervene   « directly in debt funds such as that of Sienna IM ».

On the other hand, the high-tech specialist « welcomes the emergence of financing methods for defense, which can help mobilize crucial resources for investments in this sector, such as debt funds or savings products, whether new or existing, with a specific allocation to defense.»

Anne Drif

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