The European Commission is considering proposals that would allow EU member states to help companies through the injection of equity, the latest move aimed at relaxing state aid rules to tackle the coronavirus crisis.
The new proposal calls on member states to “provide further support in equity or hybrid capital instruments” to those businesses directly affected by the pandemic, people with direct knowledge of the plan said.
Under the scheme, the granting of financial support would be conditional on companies meeting certain standards of good governance and giving commitments on how they would use the aid.
The proposal is still being drafted, but it may be announced later this week. Member states could approve the new measures shortly thereafter, though people close to the process said the timing could slip and that discussions were still ongoing.
The EU’s state aid rules restrict how member states can recapitalise companies. “Their investments are either on strict market terms or count as aid with stringent conditions, including requiring companies to shrink and restructure their businesses,” said James Webber, a partner at Shearman & Sterling in London.
He added that allowing states to inject cash into companies in exchange for equity was “a natural next step” — beyond the state guarantees for new bank lending that had been the mainstay of the support schemes the EU had approved to date.
This mirrors the state recapitalisation of the banks during the global financial crisis over a decade ago.
“In 2008 states rushed to recapitalise banks to prevent them breaching their regulatory capital requirements or even going bust,” said a state aid expert. “Right now who would buy shares in IAG, for example?”
The expert added: “Plus they may not be able to increase borrowing when future cash flow is so uncertain. A relaxation of the rules allowing states to subscribe for new equity without massive restructuring would make it easier for governments to help keep otherwise viable businesses afloat until the crisis has passed.”
Industry insiders point out that since the beginning of the economic crisis triggered by the coronavirus outbreak, regulators have been quick to act to avert bankruptcies and a further increase in unemployment.
Last month the commission adopted a so-called temporary framework that has seen state aid rules relaxed to help businesses through the crisis. Since then the EU has adopted 41 emergency measures in 16 countries, including the UK.
Other proposals to help businesses include research, testing and production of coronavirus-relevant products as Brussels seeks to protect jobs in the bloc.
Also on Monday, the commission approved a £50bn “umbrella” UK scheme to provide financial aid to small and medium-sized British businesses, as well as large corporations, that have been affected by the pandemic.
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