RH Criticism of Investment Company "Proud of Vienna"

The investment company "Proud of Vienna" was developed in 2020 by the City of Vienna and the Chamber of Commerce. The city holds 80 percent of the shares through Wien Holding, and the chamber holds 20 percent. Banks and private investors are involved as silent partners. This led to concerns among the auditors about potential conflicts of interest. The public owners primarily wanted to support companies in need of assistance, while private investors were more interested in profits.

Limited Interest in Investment Company "Proud of Vienna"

According to the report, the shareholders and investors exercised their voting rights in proportion to the actual investment contributions made. Although Holding and Chamber represented 100 percent of the share capital, they were only entitled to 63 percent of the votes. "Due to the requirement of an 85 percent majority for important decisions, the influence of private investors on the use of investment capital was greater than their shares in the company's capital," noted the Court of Audit.

However, the demand for support was apparently not overwhelming. Despite the investment phase being extended twice, fewer companies than expected were found. A total of 162 companies contacted the company. Of these, 30 participations were realized. Thus, of the 38.75 million euros that would have been available, only 28 million euros were drawn by the end of May 2023. From the Court of Audit's perspective, this was also because the investment conditions were not very attractive for many companies.

For many companies, third-party participation was not an option, as they were not willing to relinquish ownership rights or grant extensive rights of inspection, explained the RH. Of the 30 participations, by early November 2023, three companies had gone bankrupt, and restructuring proceedings were pending for three other companies. According to the report, the three bankruptcies required a value adjustment of nearly 3 million euros.

Criteria for Investment Company "Proud of Vienna" Broadly Interpreted

It was originally planned for "Proud of Vienna" to invest in Viennese companies that were not yet insolvent. However, the auditors found that the company, for example, invested 1 million euros in a company that was already experiencing financial difficulties before the pandemic. Others are said to have applied for restructuring proceedings even before signing the contract. The Court of Audit also found, according to its own statements, that the company was only able to make investments in other companies because it broadly interpreted its own selection criteria.

Because the criteria catalog specified a strong "Viennese identity." Nevertheless, money apparently also flowed into start-ups or businesses that were not even based in Vienna. About a third of the companies also had fewer than ten employees. According to the criteria catalog, there should have been between ten and 250 employees. There was also a case where the required impact from the pandemic was missing. According to the RH, a company in the mail order business, which is said to have even benefited from the corona situation, was also supported.

According to the report, the processes for decisions on the use of investment capital were considered non-transparent. This was because minutes of the informal investors' meetings were missing. The RH recommended that Wien Holding make decision-making more "comprehensible" in the future.

RH Criticism: Economic Development Not Positive

The duration of participation should also be designed flexibly, so that disposals before the end of the - up to seven years long - term are possible, it was said. This would allow the company to better manage its investments. Currently, this is not possible, it was criticized. Currently, only the companies have the option at any time to terminate the participation relationship and choose a favorable time for them to buy back their shares.

Reference was also made to the company's medium-term planning. According to this, the portfolio was already "economically unsustainable" in the summer of 2023. "It could no longer be assumed that there would be a positive value development of the company (...) by the end of 2028," it is stated.

"Proud of Vienna" Points to Rapid Assistance

At "Proud of Vienna," it was pointed out that the city and the Chamber of Commerce positioned themselves as partners for the Vienna location during a "globally dramatic situation" - namely shortly after the outbreak of the pandemic. "At that time, there were no projects or financial support," it was emphasized in a statement sent to the APA.

With the project, a total of 50 companies were helped in the form of a participation or with the option of a profit-sharing right after extensive examinations. In 20 percent, a repayment has already occurred, 30 percent of the companies are in restructuring or bankruptcy. It is also not a "free service," it was assured. Because the companies would buy back the shares according to their value. "It should be noted that this project is not based on profit maximization."

The model was presented to auditors, and an independent advisory board also made recommendations. The application of the selection criteria took place in a dynamic environment. "In individual cases, leeway was consciously used to not exclude companies with acute financial needs." The management clarified to the Court of Audit that these decisions were documented, understandable in the respective context, and made in coordination with the investors.

Opposition Demands Consequences After Court of Audit Criticism of "Proud of Vienna"

The Vienna FPÖ identified a "million-dollar flop" full of non-transparency and "cronyism" in a reaction. Party leader Dominik Nepp speculated that the profit interests of individuals stood above the public mandate to support Viennese businesses in the crisis. "The program did not save, but sunk money." Also, the rules were bent beyond recognition to put on a political show, the FPÖ politician complained.

The Green budget spokeswoman Theresa Schneckenreither also lamented in a statement that public funds were being misused to secure returns for private investors: "The Vienna SPÖ must finally learn from this report: Funding instruments need strict compliance rules - and it must be clear from the start what specific benefit the city of Vienna gets from it."

(APA/Red)

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