State Aid through Recapitalization of Market Participants in order to Eliminate Economic Disturbances caused by COVID-19


The Government of the Republic of Serbia has adopted a Decree on the Conditions and Criteria for Compliance of State Aid through Recapitalization of Market Participants in order to Eliminate Economic Disturbances caused by the Epidemic of Infectious Disease COVID-19 (“Official Gazette of RS”, No. 126/2020) („Decree“) which entered into force on 24 October 2020, and will be valid until 31 December 2021.

The Decree prescribes the conditions for granting state aid through recapitalization to market participants which were not in difficulties as of 31 December 2019* and which would cease business operations or face serious difficulties in business operations without state intervention, as well as that it is in the interest of the state to intervene and that the market participant is not able to obtain market financing on affordable terms, while the existing horizontal measures of state aid for the elimination of harmful consequences or liquidity of market participants are not enough to ensure the sustainability of beneficiary of state aid.

The Decree does not apply to participants in the financial services market.

In accordance with the Decree, state aid cannot be granted after 30 September 2021.

State aid through recapitalization may be granted individually or in combination using two types of instruments: (1) an equity instrument, by issuing ordinary or preference shares, or in another manner by which a share in the capital is directly acquired; (2) through the exercise of the right to profit-sharing, by an agreement on “silent” partnership without participation in management, convertible secured or unsecured bonds, warrants, or other instruments which indirectly acquires a share in the capital.

The amount of state aid through recapitalization shall not exceed the amount necessary for establishing the capital structure that preceded the outbreak of COVID-19 virus epidemic, i.e. on 31 December 2019.

Also, it is envisaged that the beneficiary can buy back the share in the capital acquired by the state on the basis of state aid through recapitalization at any time and that the state can sell its capital at market price to a buyer who is not a recapitalization beneficiary at any time.

The Decree also contains provisions concerning the management and prevention of inappropriate distortion of competition. Namely, it is prescribed that state aid may not be used for the purpose of accelerated business expansion, nor for taking on increased business risks, as well as that it is not allowed to acquire more than 10% share in a competitor or other market participants in the same or similar activity, including a vertically integrated market involving participants operating at different levels of the production and distribution chain, until at least 75% of the amount of the recapitalization measure is bought or sold, with the exception that more than 10% share in the participants operating in the vertical market related to the activity of the beneficiary may be acquired, if in such manner the sustainability of the beneficiary is ensured.

Furthermore, if the state aid through the recapitalization has not been redeemed (repaid), the beneficiary cannot make a dividend payment or receive or redeem shares other than the state share based on the state aid through recapitalization. Bonuses, other variables or comparable compensation of employees are not allowed until at least 75% of state aid through recapitalization has been redeemed.

The Decree also stipulates that the beneficiary is obliged to develop an exit strategy of the state from the share resulting from the recapitalization if the value of state aid is higher than 25% of the beneficiary’s capital at the time of granting of state aid, unless the value of the state’s share on the basis of recapitalization decreases below 25% share capital within 12 months from the date of granting of state aid.

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*  Exceptionally, state aid may be granted to micro or small enterprises that were in difficulty as of 31 December 2019, provided that they are not subject to bankruptcy proceedings and that they have not received state aid for rehabilitation or restructuring.


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