Download State aid and development banks

Péter Staviczky, attaché responsible for State aid
Permanent Representation of Hungary to the EU
22 March 2013


Special rules for SMEs also in this field
Commission has more favorable approach
◦ Aid to smaller companies have smaller distortive
effects
◦ Real need – market failure is more easy to prove
◦ Positive effects (employment, internalization,
innovation)
2

Logic of the State aid soft law
◦ Establishing no aid measures based on the
jurisprudence of the Courts
◦ All the rest is State aid under Art. 107. of the TFEU
 Notification under Art. 108, or
 Block exemption (Regulation 800/2008/EC)
3

No aid measures
◦ Investments, loans and guarantees at market terms
no advantage
◦ No effect on trade is rarely accepted




Risk capital
Preferential loans
State guarantees
De minimis aid – flexible as regards the form
4

Risk Capital guidelines adopted in 2006 (first
notice from 2001)
◦ Under revision in the frame of the State Aid
Modernization initiative – risk finance?

The General Block Exemption Regulation
(800/2008/EC) has a specific chapter on risk
capital measures
5

Compatibility ground Art. 107 (3) c) economic
development of certain areas
◦ Market failure at the risk capital market is
acknowledged by the Commission
◦ Assimetric information
◦ Risk averse investors – innovative projects
◦ Too small projects with high upfront costs
6

Balancing test:
◦ Common interest
◦ Proportionality, necessity and incentive effect
◦ Smaller distortive effects


Real need
Guidelines with simplified and in-depth
notifications
7

Advantage possible at 3 levels
◦ Aid for the target companies
◦ Aid for the private investors involved (no pari passu
terms, significant portion)
◦ Aid for the fund/manager – tendering leads to market
fee

Forms for intervention
◦ Establishing a fund (fund of funds) or investment
company
◦ Incentives for investors
◦ Guarantees for investors
◦ Tax measures for investors (even personal income tax)
8

Balancing test is met without further proof
(simplified procedure)
◦
◦
◦
◦
◦
◦
Investment in SMEs (expansion phase)
EUR 2.5 million/12 month
70% in the form of equity / quasi equity
30-50% private participation
Commercial fund management
Exit strategy and due diligence
9






If some of the conditions are not met –
detailed assessment
Recent market study needed
Crowding out effects are analized
Size of the Fund (efficiency)
100% State funding is allowed for seed capital
Special rules for cumulation
10



Block exemption – basic scenario but up to
EUR 1.5 million / undertaking
De minimis EUR 1 equity = EUR 1 aid no
transparent form
Revision of the rules – Commission tends to
be more flexible (no draft)
11

Hungarian experiences – using Structural
Funds mostly
◦ Jeremie I and II funds for seed and growth
investment
◦ Setting the fund of funds took a long time
◦ Financial incentives both up and downside
◦ Tendering of the fund managers
◦ n+2 rule
◦ Regional Fund under approval (de minimis already
used)
12

Market economy creditor principle – to
establish the presence of the advantage
◦ ‘Unlimited’ resources at the State
◦ Can be applied even for tax deferrals
◦ Commission sets the proxy for the market rate for
normal cases
◦ If there is advantage State aid rules should be
complied with
◦ Cumulation issues
13

Reference rate set by the Commission
 1 year interbank offer rate for the given country
(average of the previous year)
 Plus risk premiums for the company based on ratings
and the collaterals
 + 400 bp / year for undertakings without rating, startups
 Individual notification is possible
 Affiliates cannot have better rates than the mother
company
14
Premiums
Risk category
Collaterals
High
>70%
Average
70-30%
Low
<30%
Strong(AAA-A)
60
75
100
Good (BBB)
75
100
220
Statisfactory (BB)
100
220
400
Weak (B)
200
400
650
Bad /
400
650
1000
Financial difficulties
(CCC és alacsonyabb)
15

Hungarian experiences:
◦ Different aid grantors: Hungarian Development
Bank, Managing Authorities, local governments,
◦ Setting the mechanism for calculating the aid
element is important
◦ Present value calculations with the reference rate
◦ Cumulation rules should be taken into account
16





State intervention at the time when the risk is
taken
Specific forms, importance of the national law
(see judgment La Poste T-154/10.)
Can be market conform
If not, aid element should be calculated and
State aid rules applied
Aid to the borrower and to the lender as well
in some cases
17


Commission adopted a notice on State
guarantees in 2008
Establishes when the guarantee is no aid
◦ Borrower is not in financial difficulties
◦ The amount of the guarantee can be precisely
established (not unlimited)
◦ Up to 80% of the loan or obligation with exeptions
and pro rate risk bearing
◦ Market fee is paid
◦ Self financing scheme including operational costs
18

Aid element of guarantee is 0 if,
◦ The guarantee fee is established under an approved
methodology
◦ The guarantee fee for SMEs is in line with the safe
harbours, or
◦ reference rate + the risk premium of the
company/project ≤ price of the loan + price of the
guarantee paid
19




Specific rules for SMEs:
Safe harbour premium (0.4- 6.3% per year)
Simplified single premium allowed for
schemes with guarantees not exceeding EUR
2.5 million
Notification of the calculation methodology is
accepted – especially for de minimis and
block exempted aid
20




Hungarian experiences
Aim: establish a calculation of the guarantee
aid element acceptable for the COM
Low aid element: higher loans to be covered,
cumulation and use of other de minimis aid
Two guarantee institution backed with
budgetary counter guarantee
21






Only SME clients
Facilitate acces to finance
Agrucultural and non-agri portfolios
Investment and working capital loans also
covered
Undertakings in difficulties are excluded
No full risk assessment is made as required
by the notice
22





80% guarantee (70% counter guarantee)
Loans between 1-25 years
Highest amount 2.5 million €
Fee can by paid yearly or in advance for the
whole period (present value)
Income from recoveries is shared with the
budget and the bank proportionally
23



Establish a hypothetical market price - aid
element is calculated as the difference (in
each year) compared to this fee
Risk segments were created with different
risk levels
Historical data was used to establish the
average of failures and recoveries in a
segment – 3-10 year data
24





Operating expenses of the institutions is
proportionately divided among the risk
segments – self financing schemes
Segments made by type of the loan
guaranteed
In each segment working capital and
investment loans were separated
Working capital is more risk – higher fees
(1.7%-3.4%)
Premiums recalculated yearly
25

Risk capital:

Reference rate

Guarantees
◦ http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:5200
6XC0818(01):EN:NOT
◦ http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:3200
8R0800:EN:NOT
◦ http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:5200
8XC0119(01):EN:NOT
◦ http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:5200
8XC0620(02):EN:NOT
26