The Ministry of Economy has developed a new aid instrument for undertakings whose activities have been affected by the crisis caused by the Covid-19 virus and is proposing to set up a new capital fund for this purpose (hereinafter referred to as the Fund). The fund will be managed by development finance institution Altum.
“The viability of large enterprises in Latvia is vital for the recovery of economic activity in the coming months, and these enterprises continue to provide stable jobs. Within the framework of the Fund, we plan to support large enterprises that are viable but are in temporary difficulty due to the crisis caused by the virus pandemic. Large enterprises that are prepared to adapt or substantially modify their current business model as a result of the impact of Covid-19 will also be eligible for the support,” stresses the Minister of Economics Jānis Vitenbergs.
It is expected that companies active in high value-added industries, which make a high contribution to the Latvian economy, deal with innovation and produce innovative products, as well as operate in the manufacturing industry, sustainable construction, information and communication services, health and social care sectors will be able to qualify as a priority for support of the fund.
Similarly, a company will be eligible for the aid if it is was not in financial difficulty as at 31.12.2019 and meets at least one of the following criteria: the total turnover of the company has fallen by at least 30% in any three consecutive months of 2020 compared to the corresponding period of 2019; the company’s trade receivables have increased by at least 30% in any three consecutive months of 2020 compared to the corresponding period of 2019; the company has experienced significant delays or cancellations in supply of raw materials in 2020; the company has experienced a significant change in terms of payment conditions for raw materials in 2020 resulting in a negative impact on its cash flow; the company has experienced a significant number of cancelled customer orders in 2020; the company has experienced a significant reduction in the number of buyers and/or recipients of services in 2020; the company has experienced labour shortage due to the self-isolation of employees in 2020 forcing it to cease its economic activity partially or completely, etc.
Public funding of 50 million euro is expected to be granted for financing of the fund, as well as negotiations with pension fund managers for raising additional funding up to 50 million euro are ongoing.
Furthermore, 25 million euro of public funding could be granted to large enterprises affected by the spread of Covid-19 virus and showing signs of financial difficulties. On the basis of the conditions laid down by the European Commission, restructuring aid may be granted to large enterprises in financial difficulty notifying them to the European Commission individually.
Aid to companies in the form of financial instruments is expected to be granted for:
- investments in the company’s share capital by acquiring at least 20% of the company’s shares. The sale of the investment on the market is expected to take place 4-5 years after it has been made.
- investments in the share capital of the company together with another private investor, credit institution or other private equity fund, by way of a parallel investment, by acquiring at least 20% of the company’s shares. In this case too, the realisation of the investment on the market is expected to take place 4-5 years after it has been made.
- quasi-capital investments, including risk loans. In particular, the fund will grant to the company a subordinated loan with features of a direct investment in share capital which, in the event of a default, provides for the right to obtain at least 50+1 of all shares of the undertaking’s capital. The maturity of the loan shall be up to five years with the repayment of the principal at the end of the term.
- investments in corporate bonds, including convertible bonds, the fund will purchase the bonds on the primary market, provided that they are listed on the Nasdaq Riga stock exchange.