Bank of Lithuania, Commission

Bank of Lithuania breaks the ice: first recapitalisation plan in the EU approved

Today, the European Commission gave the green light to the establishment of the Lithuanian Aid Fund for Business, by approving the proposed State aid scheme. This is the first scheme approved under the State aid Temporary Framework, which provides EU countries with the opportunity to recapitalise non-financial corporations facing difficulties due to the COVID-19 outbreak. Intensive negotiations on the adoption of this instrument took place for one and a half months.

“The idea to create such a fund in Lithuania came about in March, well before the Commission’s expansion of the Temporary Framework. Whilst preparing the scheme, we, together with the Commission, have discussed plenty of potential business models, constantly learning as we moved forward. Most importantly, the agreement reached today will facilitate access to finance for Lithuanian businesses that are currently unable to find financing on the markets at affordable terms. I am also glad that our combined efforts have paved the way for other EU Member States to accelerate the implementation of similar schemes,” said Marius Jurgilas, Member of the Board of the Bank of Lithuania.

“This Lithuanian fund aims to unlock liquidity and capital support of up to €1 billion to Lithuanian companies affected by the coronavirus outbreak by facilitating their access to finance in these difficult times. It is the first scheme we have approved that will enable capital support to companies under the State aid Temporary Framework. The scheme ensures that the State is sufficiently remunerated for the risk taxpayers assume, that there are incentives for the State to exit as soon as possible, and that the support comes with strings attached, including a ban on dividends, bonus payments as well as further measures to limit distortions of competition,” claimed Margrethe Vestager, Executive Vice-President in charge of competition policy.

The Aid Fund for Business should be launched already in June 2020. Liquidity and capital support will be available to medium-sized and large enterprises that have experienced difficulties as a result of the pandemic and whose dissolution is likely to have significant social economic consequences.

Funding will be provided in line with the State aid Temporary Framework approved by the Commission. Support will come in the form of loans, debt securities, equity investment or hybrid capital instruments. Such an aid mechanism is expected to encourage the beneficiaries to issue debt securities, thus contributing to the long-term development of Lithuania’s capital market.

The fund has been founded by the Ministry of the Economy and Innovation as well as the Ministry of Finance of the Republic of Lithuania. The private limited liability companies established by the ministries will be directly managing and investing in the fund. As proposed by the Government of the Republic of Lithuania, the Bank of Lithuania will also take an active role in the management of the fund so as to guarantee its sustainable operation in the long term and ensure independent decisions regarding its management and investments. An expert team at the Bank of Lithuania was also a key player in the successful negotiations with the Commission on the State aid scheme that was approved today.

The Commission’s approval allows taking the next step necessary to set up the fund. The selection of candidates to become members of the board of the Aid Fund for Business’ management company will soon be announced. The board will also act as an investment committee. Independent members of the board will be responsible for the formation and management of the fund’s investment portfolio as well as assessment of investment and other risks. The head of the fund’s management company and independent members of its supervisory board will be elected as well. The candidates will be assessed by AIMS International Lithuania.

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