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The state may recapitalize a hotel chain, a small private company, or a public company. You will temporarily enter the ownership structure, but you will not have management rights. The legal framework to do so was given through a recently adopted regulation. We received no response from the Ministry of Finance on how much money will be needed and where will be delivered for this type of assistance to companies affected by the coronavirus pandemic.
The Decree on the conditions and criteria for the harmonization of state aid through the recapitalization of companies to eliminate the disturbances in the economy caused by the Kovid epidemic 19 regulates the conditions under which the State will recapitalize companies, both state and private.
The condition is that the companies did not have difficulties at the end of last year. They then have to show that without the help of the State they would stop doing business or face serious difficulties, which may be especially indicated by the deterioration of the debt-equity ratio of users, and a significant reduction in business income.
Then, it is in the interest of the State to intervene (for example, prevent social difficulties and market failures due to job loss, exit of an innovative or systemically important company, the risk of interruption of the provision of important services or goods and other similar circumstances).
Or that the market participant is unable to obtain financing on affordable terms, and existing state aid measures to eliminate harmful consequences or the market participant’s liquidity are not sufficient to ensure the sustainability of the beneficiary.
Support can be provided to micro and small businesses that were in trouble at the end of last year, if they are not bankrupt and do not receive state aid for restructuring.
The state will distribute money under this decree until September 3, 2021.
If state aid is greater than 250 million euros per company, it will be necessary to demonstrate that the indebtedness in the market and the previous state measures are not enough, that recapitalization is an appropriate measure to solve the problem and that the amount of aid it does not exceed the minimum required for the company to survive in the market. .
It is envisaged that the state will help by recapitalization, that is, acquiring a stake in the ownership of the company in exchange for funds, as well as so-called hybrid instruments, in which when buying bonds or some other securities, the state becomes partner without management rights, but with profit sharing.
The decree establishes that the state plans to charge an “investment rate”, which will be for the amount of the benchmark interest rate increased by the margin. Also, the longer the wait with the refund to the state, the greater the compensation.
A company that receives this type of assistance can buy the state share at any time, but the state can also sell its share to someone else at any time.
It is expected that the right of first refusal will be agreed upon to the previous owner of the share.
Until they pay off the debt, companies cannot distribute dividends, and until they pay 75 percent of the debt, there are no bonuses for management and employees.
Milorad Filipović, a professor at the Faculty of Economics, says that the conditions for receiving aid are such that there are no restrictions for small, medium and large companies. But since the decree mentions the amounts of 250 million euros of recapitalization per company, the companies that have this capacity in Serbia can be counted on the fingers of one hand.
That is why he believes that he is targeting large companies such as “Air Serbia”, EPS and several other selected companies in which the state has an equity stake.
– I do not rule out the possibility that friendly private companies also apply. I don’t know how much space there will be for them. The aid is supposed to go mainly to two or three state-owned companies. This regulation was probably passed because the European Commission is asking the government to directly distort the position of market participants and eliminate competition. On the other hand, the World Bank report last year indicated that 2.2 percent of GDP, which exceeds one billion euros, is allocated to subsidies that the State gives to various companies, of which 60 percent It is for public companies. This is explicitly prohibited because market participants are in an unequal position, he says.
If you give 200 million euros to EPS, Filipović adds, and you have a supposedly open market where as a medium or large consumer you can choose who will supply you, and the other participants do not have that help from the state, then it is not the same.
A professor at the Faculty of Economics says that the money for the recapitalization will come from the budget.
He points out that the International Monetary Fund announced that the budget deficit will be up to nine percent of GDP, which is 1.5 percent or 500 million euros more deficit than originally planned. The money for recapitalization is supposed to be included in that.
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