20
Mon, Sep
60 New Articles

Serbian Government Is Providing New Financial Aid to Legal Entities Through Recapitalization

New Financial Aid to Legal Entities Through Recapitalization

Serbia
Tools
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

The Government of the Republic of Serbia has adopted a new Decree on the conditions and criteria for compliance of state aid through a recapitalization of market participants, to eliminate disturbances in the economy caused by the epidemic of COVID-19 on 23 October 2020.

This measure is primarily intended to raise the liquidity of market participants through recapitalization, as one of the instruments of state aid. The Decree prescribes that all market participants, except for participants in the financial services market, can count on state aid in the coming period through recapitalization. However, it is not known which companies exactly can count on this type of assistance.

The maximum amount of state aid is EUR 250 million.

A higher amount can be granted if the market participant proves that:

  • market financing or horizontal liquidity state aid measures are not sufficient to ensure the sustainability of the beneficiaries;

  • recapitalization instruments have been selected with accompanying conditions suitable for resolving serious difficulties of the beneficiaries;

  • the state aid is proportional, i.e. it does not exceed the minimum necessary to ensure the sustainability of market participants.

However, state aid through recapitalization must not exceed the amount necessary for the establishment of the capital structure of the beneficiaries that preceded the outbreak of COVID-19, i.e. the situation of the beneficiary on December 31, 2019.

The state aid through recapitalization can be granted to the market participants if the following conditions are met:

  1. On 31 December 2019, the market participants were not in difficulties in terms of the Regulation on Rules for Granting State Aid (“Official Gazette of RS”, No. 13/10, 100/11, 91/12, 37/13, 97/13 and 119/14) (e.g. the legal entity in difficulty is an entity that is not capable of preventing losses with its own funds, the funds of its owners/shareholders or creditors or funds from other sources on the market and which would, without state intervention, endanger its survival in the short or medium-term);

  2. Without the intervention of the state, the market participant would cease operations or face serious difficulties in operations, which may be indicated in particular by the deterioration of the debt-equity ratio of users, significant reduction of operating revenues or similar indicators;

  3. It is in the interest of the state to intervene (e.g. prevention of social difficulties and market failure due to significant loss of employment, the exit of an innovative or systemically important company, risk of interruption of the provision of important services or goods, and other similar circumstances);

  4. The market participant is not able to obtain financing on the market under affordable conditions, and the existing horizontal measures of state aid to eliminate harmful consequences or liquidity of market participants are not sufficient to ensure the sustainability of users;

  5. The market participant has submitted a written, reasoned request for the granting of state aid to the provider, which shall be submitted to the State Aid Control Commission together with the application for state aid.

Notwithstanding the above, the state aid may be granted to micro or small enterprises that were in difficulty on December 31, 2019, provided that they are not subject to bankruptcy proceedings and have not received state aid for rehabilitation or restructuring.

Manners of recapitalization

The provider can grant state aid through recapitalization individually or in combination, using two types of instruments:

  1. an equity instrument, by issuing ordinary or preference shares, or in another way by which a direct acquisition of capital is acquired;

  2. through the exercise of the right to profit-sharing, by an agreement on “silent” partnership without participation in management, convertible secured or unsecured bonds, warrants, or other instruments which indirectly acquires a share in the capital (hybrid instrument).

Compensation

In addition to the obligation of recapitalization redemption by paying off the entire amount of state investment, the market participants shall be obliged to pay the compensation for state aid to Serbia, which represents the price/reward to the state, for investing in the capital of the market participants.

The Decree introduced the mechanism on the basis of which the compensation for state aid through recapitalization is gradually increasing, approaching the market prices of borrowing, with the aim to encourage the user, i.e. other owners to buy the state investment in question as soon as possible, which at the same time reduces the risk of distortion of competition.

Dividends

If the state aid through recapitalization has not been redeemed (repaid), the beneficiary cannot pay dividends or receive or redeem shares, except for the state share on the basis of state aid through the recapitalization.

The final deadline for granting the state aid through recapitalization based on this Decree is 30 September 2021.

By Bojana Javoric, Senior Associate, JPM Jankovic Popovic Mitic

JPM Jankovic Popovic Mitic at a Glance

The oldest full service commercial law firm in Serbia, founded in 1991, JPM with three decades of experience in assisting local and international businesses presence and growth not only in Serbia but throughout the SEE region.

We have accumulated a wealth of knowledge in every industrial and corporate sector, from energy to banking, transport, manufacturing and telecommunications, while remaining true to a pioneering spirit that has always drawn us to follow the latest trends and developments in providing of our services to clients. Today we use the latest legal tech available in serving our clients and are expanding our services to clients from growing industries such as renewable energy, IT and life sciences, by offering innovative solutions and a pro-active approach to broaching new grounds.

Our expertise, experience, and commitment to professional excellence mean we are routinely involved in landmark cases and transactions, while our high standing among clients and peers sees us ranked among the leading law firms by independent guides such as Chambers & Partners, Legal 500, and IFLR1000.

We are known for working closely with clients and treating their problems as our own. Our lawyers pride themselves on being team players, fast and available, specialised in terms of practice area and industry, but versatile and creative in their thinking. We believe our advice should be tailor-made and that even the thorniest issue has a legal solution.

Our membership of Lex Mundi (the world’s premiere network of independent law firms) and the TLA (a regional alliance of leading firms from Slovenia, Croatia, Bosnia and Herzegovina, Montenegro, North Macedonia, and Serbia) means we have close working relationships with first-rate firms throughout the region and around the world, enabling us to operate as the perfect hub for SEE and other multi-jurisdictional transactions.

Firm's website: http://jpm.rs/