The European Commission has approved German plans to set up a €46 billion fund at the level of the German State (Land) of Bavaria to provide guarantees and invest through debt and equity instruments in enterprises affected by the coronavirus outbreak in Bavaria. The scheme was approved under the State aid Temporary Framework.
Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “This Bavarian fund will mobilise €46 billion of liquidity and capital support to help medium-sized enterprises that are particularly important for the real economy of Bavaria to weather the crisis. The measure ensures that the State is sufficiently remunerated for the risk taxpayers assume, and, as regards recapitalisation measures, that there are incentives for the State to exit as soon as possible, and that the support comes with adequate conditions, including a ban on dividends, bonus payments as well as further measures to limit distortions of competition. We continue to work closely with Member States to ensure that national support measures can be implemented as quickly and effectively as possible, in line with EU rules. ”
The German support measures
Germany notified to the Commission under the Temporary Framework a fund (”BayernFonds”), with a target size of up to €46 billion, that will provide liquidity and capital support to enterprises that are important for the real economy in Bavaria and that were affected by the coronavirus outbreak.
Under the scheme, the support will take the form of (I) guarantees (that are expected to mobilise €26 billion), as well as (II) subsidised debt instruments in form of subordinated loans, and (III) recapitalisation instruments (in total up to €20 billion), in particular equity instruments (acquisition of newly issued ordinary and preferred shares or other forms of shareholding) and hybrid capital instruments (namely convertible bonds and silent participations).
The scheme, which is mostly targeted at medium-sized companies in Bavaria, complements the support that companies can receive under the German Federal Economic Stabilisation Fund that the Commission approved on 8 July 2020 and that is mostly targeted at larger companies. Companies that receive aid under the Federal Economic Stabilisation Fund will not be eligible to receive aid under the Bavarian fund. However, aid can be co-financed by both funds.*
The Commission found that the Bavarian scheme notified by Germany is in line with the conditions set out in the Temporary Framework. In particular:
- With respect to aid in form of guarantees, (i) the underlying loan amount per company is limited to what is needed to cover its liquidity needs for the foreseeable future; (ii) the guarantees are limited to a maximum duration of six years; (iii) the guarantees will only be provided until the end of this year; (iv) the guarantees can only cover up to 90% of the risk; (v) guarantee fee premiums comply with the minimum levels foreseen by the Temporary Framework.
- With respect to aid in the form of subordinated loans, the scheme (i) covers working capital and investment needs with a limited maturity and size; (ii) is limited in time; (iii) provides for an adequate remuneration for the State;; (iv) provides that subordinated loans with a volume that exceeds the relevant limits in the Temporary Framework will comply with the conditions applicable to recapitalisation measures.
- With respect to recapitalisation measures, (i) support is available to companies if it is needed to maintain operations, no other appropriate solution is available, and it is in the common interest to intervene; (ii) support is limited to the amount necessary to ensure the viability of beneficiaries and does not go beyond restoring their capital structure before the coronavirus outbreak; (iii) the scheme provides an adequate remuneration for the State; (iv) the conditions of the measures incentivise beneficiaries and/or their owners to repay the support as early as possible (inter alia through progressive increases in remuneration, a dividend ban as well as a cap on the remuneration of management and a ban of bonus payments to management); (v) safeguards are in place to ensure that beneficiaries do not unduly benefit from the recapitalisation aid by the State to the detriment of fair competition in the Single Market, such as an acquisition ban to avoid aggressive commercial expansion; and (vi) aid to a company above the threshold of €250 million has to be notified separately for individual assessment.
Finally, only companies that were not considered to be in difficulty already on 31 December 2019 are eligible for aid under this scheme. This requirement may be eased for micro or small enterprises, in line with the provisions of the Temporary Framework.
The Commission concluded that the Bavarian scheme will contribute to managing the economic impact of the coronavirus outbreak in Bavaria. Furthermore, it is necessary, appropriate and proportionate to remedy a serious disturbance in the economy of a Member State, in line with Article 107(3)(b) TFEU and the conditions set out in the Temporary Framework.
On this basis, the Commission approved the scheme under EU State aid rules.
The Commission has adopted a Temporary Framework to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the coronavirus outbreak. The Temporary Framework, as amended on 3 April, 8 May, and 29 June 2020, provides for the following types of aid, which can be granted by Member States:
(i) Direct grants, equity injections, selective tax advantages and advance payments of up to €100,000 to a company active in the primary agricultural sector, €120,000 to a company active in the fishery and aquaculture sector and €800,000 to a company active in all other sectors to address its urgent liquidity needs. Member States can also give, up to the nominal value of €800,000 per company zero-interest loans or guarantees on loans covering 100% of the risk, except in the primary agriculture sector and in the fishery and aquaculture sector, where the limits of €100,000 and €120,000 per company respectively, apply.
(ii) State guarantees for loans taken by companies to ensure banks keep providing loans to the customers who need them. These state guarantees can cover up to 90% of risk on loans to help businesses cover immediate working capital and investment needs.
(iii) Subsidised public loans to companies (senior and subordinated debt) with favourable interest rates to companies. These loans can help businesses cover immediate working capital and investment needs.
(iv) Safeguards for banks that channel State aid to the real economy that such aid is considered as direct aid to the banks’ customers, not to the banks themselves, and gives guidance on how to ensure minimal distortion of competition between banks.
(v) Public short-term export credit insurance for all countries, without the need for the Member State in question to demonstrate that the respective country is temporarily “non-marketable”.
(vi) Support for coronavirus related research and development (R&D) to address the current health crisis in the form of direct grants, repayable advances or tax advantages. A bonus may be granted for cross-border cooperation projects between Member States.
(vii) Support for the construction and upscaling of testing facilities to develop and test products (including vaccines, ventilators and protective clothing) useful to tackle the coronavirus outbreak, up to first industrial deployment. This can take the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid.
(viii) Support for the production of products relevant to tackle the coronavirus outbreak in the form of direct grants, tax advantages, repayable advances and no-loss guarantees. Companies may benefit from a bonus when their investment is supported by more than one Member State and when the investment is concluded within two months after the granting of the aid.
(ix) Targeted support in the form of deferral of tax payments and/or suspensions of social security contributions for those sectors, regions or for types of companies that are hit the hardest by the outbreak.
(x) Targeted support in the form of wage subsidies for employees for those companies in sectors or regions that have suffered most from the coronavirus outbreak, and would otherwise have had to lay off personnel.
(xi) Targeted recapitalisation aid to non-financial companies, if no other appropriate solution is available. Safeguards are in place to avoid undue distortions of competition in the Single Market: conditions on the necessity, appropriateness and size of intervention; conditions on the State’s entry in the capital of companies and remuneration; conditions regarding the exit of the State from the capital of the companies concerned; conditions regarding governance including dividend ban and remuneration caps for senior management; prohibition of cross-subsidisation and acquisition ban and additional measures to limit competition distortions; transparency and reporting requirements.
The Temporary Framework enables Member States to combine all support measures with each other, except for loans and guarantees for the same loan and exceeding the thresholds foreseen by the Temporary Framework. It also enables Member States to combine all support measures granted under the Temporary Framework with existing possibilities to grant de minimis to a company of up to €25,000 over three fiscal years for companies active in the primary agricultural sector, €30,000 over three fiscal years for companies active in the fishery and aquaculture sector and €200,000 over three fiscal years for companies active in all other sectors. At the same time, Member States have to commit to avoid undue cumulation of support measures for the same companies to limit support to meet their actual needs.
Furthermore, the Temporary Framework complements the many other possibilities already available to Member States to mitigate the socio-economic impact of the coronavirus outbreak, in line with EU State aid rules. On 13 March 2020, the Commission adopted a Communication on a Coordinated economic response to the COVID-19 outbreak setting out these possibilities. For example, Member States can make generally applicable changes in favour of businesses (e.g. deferring taxes, or subsidising short-time work across all sectors), which fall outside State Aid rules. They can also grant compensation to companies for damage suffered due to and directly caused by the coronavirus outbreak.
The Temporary Framework will be in place until the end of December 2020. As solvency issues may materialise only at a later stage as this crisis evolves, for recapitalisation measures only the Commission has extended this period until the end of June 2021. With a view to ensuring legal certainty, the Commission will assess before those dates if it needs to be extended.
The non-confidential version of the decision will be made available under the case number SA.57447 in the State aid register on the Commission’s competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.
More information on the Temporary Framework and other action the Commission has taken to address the economic impact of the coronavirus pandemic can be found here.