Ministerial Committee on Economic Policy outlines general principles and conditions for financing large corporations facing difficulties due to COVID-19 epidemic
On Friday 26 June, the Ministerial Committee on Economic Policy decided on the principles and conditions for granting state financing and support to large companies facing temporary difficulties due to the coronavirus epidemic. The policy approaches were drawn up based on joint preparations by the Ministry of Economic Affairs and Employment and the Ministry of Finance as agreed by the Ministerial Committee at the end of May.
The principles and conditions outlined by the Ministerial Committee on Friday are as follows:
The general principle when deciding to grant public enterprise financing is that the financing will supplement the supply of the financial markets as a remedy for market failures, taking into account the sustainability aspect of central government finances, including the development of contingent liabilities. The objective is to promote the sustainable growth of businesses and to support sectors and businesses that play an important role from the perspective of the economy and employment. As a rule, the aim is to share risks with market operators and to make use of EU financial instruments and risk-sharing measures. The assessment of financing decisions will take into account general consideration and overall economic impacts.
The preferred option is to seek a solution to the corporation’s problems with the help of the owners, financiers and/or other private-sector operators. State leadership and the management of state-owned companies and institutions may, if necessary, assist in coming up with a solution for negotiations.
The State may use its own measures to finance and support only those businesses that were on sound footing before the crisis. In addition, the difficulties faced by the business must be shown to be temporary in nature and to be a result of the pandemic, not due to permanent changes in market conditions. Processing the application for financing or support includes an assessment of the target company’s business plan, which must demonstrate that its operations will be commercially viable once the effects of the pandemic have subsided.
Applications for financing and support should be addressed to the existing state-owned companies with special assignments responsible for corporate financing (Finnvera and Tesi). The processing of the application also includes an assessment of the most appropriate instrument for financing and/or support. The possibility of using EU financing and support programmes should be explored [as part of the overall solution or] to the extent possible before resorting to Finnish state financing and support.
The financing will primarily be targeted at businesses that are assessed to have more limited opportunities to apply for financing on the market, i.e. SMEs, midcaps and unlisted companies. It is also possible to come up with financing solutions for businesses that have a significant positive impact on the creation of domestic value added and jobs.
The measures at the State’s disposal include guarantees, debt financing and, in some cases, especially for large companies, equity financing. If state shareholding is required to safeguard the interests of the State, the ownership must be withdrawn according to a withdrawal plan and taking into account the market situation.
As a rule, the State will not participate in recapitalisation or other financing or support operations without participation from private-sector, profit-making operators as well.
In the case of short-term liquidity problems arising from COVID-19, the primary means of support may be a state guarantee granted by Finnvera or the Ministry of Finance for new short-term liquidity financing. This state intervention can help the company overcome its temporary cash-flow crisis. In addition, it is essential to ensure that the business owners and its other financiers, in particular the main banks, remain committed to the operator and believe in its commercial profitability. Finnvera may also grant credit instead of a guarantee, in which case the arrangement must involve other financiers and/or risk-sharing.
As a rule, a condition for receiving state aid is a prohibition on the distribution of assets, which applies to dividends and capital repayments. This principle also applies to liquidity/working capital financing, in which case banks must undertake not to require the early repayment of loans. These conditions create an incentive to withdraw from state financing as quickly as possible.
An independent assessment of the economic and employment effects of the decision to grant support is always carried out when the decision is made. The decision includes an assessment of the expected increase in employment in person-years, taking into account domestic subcontracting chains, and this should be proportional to the value of the State's financial contribution. The assessment also looks into the impacts on skills retention, the environment and climate, the regional economy and other externalities, as well as the market situation.
The amount of the financing will be determined according to the carrying capacity of public finances.
All decisions to grant financing and support must comply with the EU rules on state aid. The starting point is that state measures are market-based but, if necessary, the Commission will be notified of aid decisions or programmes. The euro amount of the financing decisions in may exceed that granted under normal circumstances by Finnvera or Tesi. With regard to Finnvera, it is appropriate to increase the current limit of COVID-19 financing of up to EUR 30 million in domestic financing to approximately EUR 100 million for a fixed period until the end of 2020.
It is possible that applications for support from the State will have to be processed quickly. Therefore, a Ministry that has identified a potential need for support must immediately contact the Secretary of the Ministerial Committee on Economic Policy to begin the preparations for decision-making.
The Ministry of Finance, together with ownership steering, the Ministry of Economic Affairs and Employment and the Ministry of Transport and Communication, will prepare technical guidelines for the processing of applications for financing and support. It is important to ensure that the division of powers under the Government Rules of Procedure is applied uniformly and that good data protection practices are observed.
Inquiries: Kari Parkkonen, Senior Ministerial Adviser, tel. +358 295 064 938 and Timo-Jaakko Uotila, Senior Specialist, tel. +358 295 047 128, Ministry of Economic Affairs and Employment, tel. +358 295 064 938 and Leena Mörttinen, Director General, Ministry of Finance, tel. +358 295 530 021