The European Commission (EC) has given the green light to the establishment of the State Aid Fund for Business in Lithuania, having approved the scheme for the provision of state aid today. It is the first scheme approved in the European Union (EU) under the extended temporary state aid framework to allow states to recapitalize non-financial companies affected by the COVID-19 outbreak. Intensive negotiations for the adoption of this measure lasted for a month and a half.
“The idea to establish such a fund in Lithuania was born in March, long before the European Commission’s decision. When coordinating the scheme, we discussed with representatives of the European Commission a bunch of models of operation of such a Fund and learned together. Most importantly, the agreement reached provides financing opportunities for Lithuanian business, which cannot receive it on favourable terms in the markets. It is also gratifying that our path has paved the way for other EU member states to implement similar processes more quickly learning from our experience,” says Marius Jurgilas, a member of the Board of the Bank of Lithuania.
Margrethe Vestager, Executive Vice President of the European Commission responsible for the competition policy, said that “the Lithuanian Fund aims to free up up to EUR 1 billion in liquidity and capital support to Lithuanian companies affected by the coronavirus outbreak, facilitating their access to financing during this difficult period. This is the first scheme we have approved, which will provide companies with capital support under the temporary state aid scheme. The scheme ensures that the state is adequately remunerated for the risks borne by taxpayers, encouraging the state to withdraw aid as soon as possible, and that the aid is provided under certain conditions, including a prohibition to pay dividends, bonuses and other measures limiting distortions of competition.”
The aim is for the State Aid Fund for Business to be launched in June. Financial support from the Fund will be available to medium-sized and large enterprises which have experienced difficulties as a result of the pandemic and whose closure may have significant socio-economic consequences. The Fund will provide financing in accordance with the principles of the Temporary Framework for state aid measures to support the economy in the current COVID-19 outbreak.
The aid will be provided to companies in the form of loans, debt securities, equity investments or hybrid capital instruments. Such an aid mechanism is expected to encourage companies applying for support to issue debt securities and thus contribute to a long-term development of the capital market in Lithuania. The Ministry of Economy and Innovation of the Republic of Lithuania and the Ministry of Finance of the Republic of Lithuania participate in the creation and establishment of the Fund. Their established companies will invest in the Fund and manage it.
At the proposal of the Government, the Bank of Lithuania will actively participate in the management of the Fund in order to guarantee long-term sustainable operations and ensure independent management and investment decisions of the Fund. The team of experts of the Bank of Lithuania also played the key role in successfully negotiating with the EC the state aid scheme approved today. After the EC’s approval, subsequent actions necessary for the establishment of the Fund can be taken.
The selection of candidates for the Board of the company managing the Fund, which will also act as the investment committee, will be announced shortly. Independent members of the Board will be responsible for the formation and management of the Fund’s investment portfolio, evaluation of investments and other risks. The head of the company managing the Fund and independent members of the Supervisory Board will also be selected. Independent consultants of AIMS International Lietuva will select candidates.
Information from the European Commission.