EC approves €350 million Maltese guarantee scheme to support economy

On 2 April 2020, the European Commission approved a Maltese COVID-19 guarantee scheme for working capital loans granted by commercial banks to support companies affected by the coronavirus outbreak (the ‘CGS’). The scheme was approved under the State aid Temporary Framework to support the economy in the context of the COVID-19 outbreak and is part of a broader package of Government’s COVID-19 Response Support Programme.

The CGS has an estimated budget of €350 million and aims to enhance access to bank financing for the working capital requirements of businesses in Malta facing a sudden acute liquidity shortage as a result of the COVID-19 outbreak.

Features of the CGS

i. What type of aid is granted under the scheme?

The CGS provides state guarantees for loans granted by commercial banks in Malta to meet new working capital requirements of businesses facing cash-flow disruptions due the effects of the COVID-19.

ii. Who are eligible beneficiaries?

The CGS will cover all business undertakings established and operating in Malta:

• a) Small and medium-sized enterprises (‘SMEs’): up to 250 employees; and
• b) Large enterprises: employment exceeding 250.

iii. What are the eligibility criteria under the scheme?

Eligible loans

The scheme is intended to cover loans of the following maximum individual amounts:

• SMEs: (i) €2 million; or (ii) amounts higher than €2 million but limited to a maximum of €4 million, subject to the prior ad-hoc approval by the Malta Development Bank (the ‘MDB’); and
• Large enterprises: (i) €5 million; or (ii) amounts higher than €5 million but limited to a maximum of €8 million, subject to the prior ad-hoc approval of the MDB.;

Provided that such amounts do not exceed:

• Double of the annual wage bill of the beneficiary; or
• 25% of total turnover of the beneficiary in 2019;
• a higher amount, subject to appropriate justification and self-certification, to cover the liquidity needs of SMEs for the coming 18 months and of large enterprises for the coming 12 months.

Interest rate: To be determined by the commercial bank. Commercial Banks would need to give an interest rate reduction to beneficiaries of one percentage point on the average lending rate as compared to similar facilities prior to the introduction of the guarantee scheme.

Loan term: Minimum 18 months to maximum of 48 months. The term can increase to 72 months, subject to additional terms and conditions. Loan terms longer than 72 months will not be covered by the CGS

Moratorium: Minimum period of 6 months with the possibility to extend to one year on a case-by-case basis. The moratorium applies to both interest and capital repayments.

Eligible costs included in working capital

The CGS covers new working capital loans. Eligible costs under these loans mainly include, but are not limited to:

• Salaries of employees, including social and health security payments;
• Lease of establishment, including rental costs, energy and water bills, fuel etc.;
• Unpaid invoices due to a decrease in business revenues in respect of working capital and other similar commitments and in respect of investment expenditures provided that investment expenditures only qualify under the scheme if they were contracted for prior to the approval of this scheme by the Commission;
• Acquisition of material and stock for continuation of business;
• Expenses directly related to contracts which were cancelled or postponed because of the COVID-19 outbreak, excluding penalties and other liabilities incurred due to non-performance of contracts;
• Maintenance costs.

The CGS shall not cover restructuring or rescheduling of existing facilities.

iv. What is the application procedure?

Business undertakings wishing to avail themselves of the facilities covered by the CGS should contact any one of the accredited banks to enquire on their eligibility and other information on the CGS.

European Commission’s assessment of the CGS

The European Commission found that the scheme is in line with the conditions set out in the Temporary Framework, in particular:

• (i) the underlying loan amount per compan is linked to cover its liquidity needs for the foreseeable future,
• (ii) the guarantees will only be provided until the end of this year,
• (iii) the guarantees are limited to a maximum of six years, and
• (iv) guarantee fee premiums do not exceed the levels foreseen by the Temporary Framework.

The measure was approved on the basis that it had been concluded to be 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.