The implementation of economic measures in the context of COVID-19
The Romanian Government has approved Government Emergency Ordinance no. 29 dated 18 March 2020 regarding economic and budgetary/fiscal measures (“EO 29/2020”), which was published in the Romanian Official Gazette no. 230 on 21 March 2020.
EO 29/2020 amends, amongst others things, certain criteria and/or thresholds regarding State guarantees for various types of credit facilities. These guarantees were granted by the State under Government Emergency Ordinance no. 110/2017 (“EO 110/2017”) in order to sustain the small and medium-sized enterprises programme – IMM Invest Romania.
1. What type of credit facilities benefit from such State guarantees? Does EO 29/2020 introduce new types of credit facilities that may benefit?
EO 29/2020 does not introduce new types of credit facilities which may benefit from certain guarantees granted by the State. Therefore, only the following may continue to benefit from the State guarantees:
(i) one or several credit facilities for investment purposes and credit facilities/credit lines for working capital, guaranteed by the State through the Ministry of Public Finance (MFP), up to a maximum of 80% of the financing amount, excluding interest, commissions and bank charges related to the secured credit facility.
The guarantee has been increased to a maximum of 80% (previously being 50%), except for credit facilities granted to microenterprises and small enterprises (“IMMs”) having a maximum value of RON 500,000 or RON 1,000,000 respectively, which shall benefit from a guarantee of a maximum of 90%;
(ii) One or several guarantees for credit facilities/credit lines granted for financing the working capital, exclusive of interest, commissions and bank charges, and related to the State secured credit facility of a maximum of 90% granted to a microenterprises and small enterprises having a maximum value of RON 500,000 or RON 1,000,000 respectively.
2. Has the duration of the financing guaranteed by the State been amended?
EO 29/2020 increases the maximum duration of the financing for the working capital credit facilities/credit lines to 36 months.
Therefore, credit facilities/credit lines for working capital purposes can be extended by a maximum period of 36 months, following which, in the last year of the extension, they must be reimbursed in accordance with the conditions provided for by law.
3. Are there any amendments to the thresholds of the State-guaranteed financing?
Following the enactment of EO 29/2020, the amount of the State-guaranteed financing remains the same, this being:
- For credit facilities provided under point 1(i) above, the maximum total amount of State-guaranteed financing for an IMM will be RON 10,000,000. However, the following are slight variations to this:
- for credit facilities/credit lines granted for working capital financing purposes it shall not exceed an amount equal to the average of the working capital expenses within the last two fiscal years (up to a maximum of RON 5,000,000). It is important to note that, for IMMs that have not submitted their financial statements when applying for a secured credit facility, the maximum amount of financing for the credit facilities/credit lines for the working capital will be calculated as twice the average of the working capital expenses outlined in monthly balances.
- for credit facilities for investment purposes, the maximum financing amount is RON 10,000,000.
- For credit facilities under point 1(ii) above, the maximum amount of each financing granted to a beneficiary shall not exceed the average of the working capital expenses for the last two fiscal years, subject to the above mentioned thresholds (i.e. RON 500,000 for microenterprises and RON 1,000,000 for small enterprises). It is important to note that for microenterprises or small enterprises that have not submitted their financial statements at the time of applying for the secured credit, the maximum value of the financing for working capital credit facilities/credit lines will be calculated as twice the average of the working capital expenditure outlined in the monthly balances.
4. Are there any State-granted facilities with respect to the interest subsidy?
With respect to the credit facilities/credit lines provided at point 1(i) and 1(ii) above, the MFP on behalf of the State, will subsidise the interest related to these types of credit facilities by 100%, under a State de minimis aid scheme associated with the guarantee programme.
The subsidy period will be calculated commencing with the availability date of the credit facility/credit lines entered into following the enactment of EO 29/2020 (i.e. 21 March 2020) and can last until 31 March 2020.
Furthermore, the interest subsidy will be approved annually by law for the first year and then for the next 2 years under specific requirements regulated by EO 29/2020.
5. Are there any amendments to the eligibility requirements to access the guarantee programme?
EO 29/2020 provides that, amongst the existing eligibility requirements, an IMM is eligible if it does not record overdue tax liabilities to the central tax public authority (i.e. ANAF). However, uniquely, if such overdue tax liabilities are recorded, the beneficiary must undertake to pay them from the working capital credit facility/credit line granted within the programme.
6. Are there any other relevant changes introduced by EO 29/2020?
EO 29/2020 also introduces amendments to the management fee definition.
The management fee definition is extended by EO 29/2020, whereby the rate of the fee is to be established annually by the law approving the State de minimis aid scheme and for the entire period of the State de minimis aid scheme and will be borne from the State budget.
Also, it is important to note the removal of the obligation regarding the payment of the guarantee premium by the beneficiaries of the guarantee programme, which comprised the risk fee and the administration fee.
On a separate note, another significant aspect of EO 29/2020 is aimed at approving the operations granted by Eximbank S.A., on behalf of the State, which lead to a combined exposure of the same debtor or group of debtors above the threshold of EUR 50 million or the RON equivalent, which can be achieved through the following mechanism:
(i) should Eximbank S.A. provide business operators with financing arising from the credit facilities granted on behalf of the State prior to Government approval by means of a Memorandum, Eximbank S.A. shall provide to the MFP for review, and for approval by the Government, the Memorandum approving such operations within 15 days of granting the financing.
(ii) should the above-mentioned operation not be approved within the prescribed timeframe, Eximbank S.A. is obliged to provide the State funds, reduced by the amounts granted to the business operators, from Eximbank S.A. own resources.
In the exceptional circumstances of the COVID-19 pandemic, the entire Romanian business community is at risk of facing a severe lack of liquidity, leading to a decrease in the solvency of business operators.
Particularly exposed in this regard are small and medium-sized enterprises (IMMs) which represent a significant percentage of the Romanian business community.
For reference purposes, Law no. 346/2004 on the establishment and development of small and medium-sized enterprises defines IMMs as those economic entities which cumulatively fulfil the following requirements:
(i) have an average annual number of employees of less than 250; and
(ii) have a net annual turnover of up to EUR 50 million, or the RON equivalent, or possess total assets not exceeding EUR 43 million or the RON equivalent, pursuant to the last approved financial statement. Total assets are defined as fixed assets plus current assets plus prepayments.
These defining criteria in respect of IMMs should be implemented, in principle, across the entire European Union. Recommendation 2003/361/EC concerning the definition of micro, small and medium-sized enterprises specifically provides for certain similar criteria regarding the definition of such enterprises.
In real terms, according to the latest available information, it seems that approximately 500,000 IMMs are active in Romania, representing a significant percentage of those involved in the Romanian business community. And, according to the latest available information, approximately 25 million IMMs are currently active across both Romania and the European Union which represents a considerable number of entities.