The State Aid Fund for Business will be launched today. It will help to ensure the liquidity of medium-sized and large enterprises, their access to financing and faster recovery from the crisis.
The main aim of the Fund is to help medium-sized and large enterprises active in Lithuania affected by the coronavirus outbreak. In addition to other measures for financing small and medium-sized enterprises already in place, the Fund will invest in Lithuanian companies having experienced financial difficulties that pose a threat to continuity of their activities.
This Fund also aims to encourage the development of the capital market by attracting institutional investors to funds operating in Lithuania, also seeking for investment return for participants in the Fund.
UAB Valstybės Investicijų Valdymo Agentūra (VIVA) established by the Ministry of Finance is responsible for the Fund’s management, investment evaluation, selection, investment supervision, risk management and the Fund’s return.
“The state’s priority is to invest in economic recovery and sustainable growth. From the very beginning of the quarantine, we started with support for small and medium-sized businesses. The State Aid Fund for Business targeted at larger enterprises will be launched today. COVID-19 situation is not getting any better in the world and is likely to continue until we have a reliable vaccine. Therefore, uncertainty in the economy will remain for a long time to come. This only shows that the idea and importance of support for medium-sized and large businesses planned back in the summer is still relevant,” says the Minister of Finance Vilius Šapoka.
The state will invest the initial contribution of EUR 100 million in the Fund via the company established by the Ministry of Economy and Innovation UAB Valstybės Investicinis Kapitalas (VIK) and, depending on the need, this company plans to issue up to EUR 400-million-euro debt securities with a state guarantee. The plan is to also raise up to EUR 500 million from institutional investors for the Fund. Thus, the size of the Fund could reach up to EUR 1 billion.
“Having provided a state contribution to the Fund, we wish for the targeted funds to reach Lithuanian companies and for this Fund not only to help businesses to recover from the coronavirus pandemic, but also to allow them to look into the future optimistically. We wish transparency and productivity so that the aid to business financed by the Fund and the development of the capital market benefit both the private business and the state. After all, successful companies are in the best of interest of all of us – they pay taxes to the state budget, and the state can continue to successfully distribute these funds to meet the needs of the society. The Fund was established just in time, so I believe that it will be a convenient and useful tool for business,” says Rimantas Sinkevičius, the Minister of Economy and Innovation.
One of the initiators of this Fund, the Bank of Lithuania, will ensure its independence by appointing representatives to supervise the management of both the Fund and the companies. Investment decisions will be made in accordance with the best international practice and control system for multi-level funds. Transparency is the top priority of the Fund, thus information on the Fund’s transactions and performance will be made public.
“The State Aid Fund for Business was born in seven months from the idea till its actual launch, which is a really good result, considering that it was started from scratch. In cooperation with the European Commission, specialists of the Bank of Lithuania developed an innovative business financing mechanism based on investments rather than subsidies. Legal safeguards and their control system provided for ensuring the independence and transparency of the Fund should guarantee successful operation of the new Fund,” says Vitas Vasiliauskas, the Chairman of the Board of the Bank of Lithuania.
Priority will be given to companies, which operate in important sectors of the economy, are major employers and whose exit may have negative economic or social consequences. The Fund’s investments will also seek to support companies whose activities or technologies may have a significant impact on the development of the country’s economy or individual sectors.
The main financial instruments to be used by the Fund will include loans, bonds, hybrid instruments that have characteristics of capital or participation in the management of the share capital of companies.
“We set high standards of transparency and professionalism for the Fund, therefore we will ensure active communication of its activities and results, at the same time seeking to make the Fund a reliable partner for companies that need it most at the moment, in order to restore the missing liquidity or capital. Since the Fund will invest in companies in difficulty and will often be the last resort to raising financing, its investment conditions will reflect the risk assumed. It is also very important for the Fund to be attractive to institutional investors, therefore we will strive for a positive return on investment,” says Dainius Vilčinskas, CEO of UAB Valstybės Investicijų Valdymo Agentūra (VIVA).
There are about 4 500 medium-sized and large enterprises (with 50 employees at the least) operating in Lithuania, which create more than 60% of gross domestic product and more than half of all jobs in Lithuania. Such companies pay more than half of all value added, profit and other taxes to the state budget. A disruption of activities of even a few of such companies or their bankruptcy would affect the state economy. Since debts to suppliers and employee salary obligations account for nearly a half of current liabilities of medium-sized and large enterprises (amounting to about EUR 10 billion), negative effects would trigger chain reactions and significantly affect various economic clusters, harming smaller companies, losing jobs and reducing income earned by employees.