Land sale, guarantees and risk
capital
Eszter Hargita
1 June 2011
Ankara
Content
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Land sale
Guarantees
Interest rates
Risk capital/venture capital
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Communication on the sale of
lands
• The Communication indicates a sale through unconditional
bidding procedure as a way to exclude the presence of aid.
• Defined as a procedure open, non-discriminatory and
unconditional by which MS give the maximum publicity to the
sale in order to attract the highest number of offers
AND without prejudice of the applicable public procurement
rules.
• The tender shall respond to the same criteria that would have
been imposed by a private operator in similar circumstances.
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Sales of land
• If conditions are fulfilled + best or only bid accepted → market
value → no advantage no aid (provided that the sold assets
don’t have a negative value).
• Conditions → the sale should be unconditional although
• some public law conditions (e.g. prevention of public
nuisance) or public interest conditions (construction of
childcare facilities) can be allowed.
• On the contrary, conditions imposed by the State as a seller
that are liable of reducing the sales price could involve State
aid
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Sale of public companies
• Sale through an unconditional bidding procedure as
a way to exclude the presence of aid.
• According to case practice, if the following cumulative
conditions are fulfilled:
􀀹 open, transparent and non-conditional tender;
􀀹 selection of the highest bidder;
􀀹 bidders are given enough time to assess the offer.
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Sale of public companies
• Sale should be “unconditional”
• Acceptable conditions → “public order conditions”
(e.g. to avoid speculative bids) or conditions that
would also be imposed by a private operator.
• Non acceptable conditions → those imposed by the
State as public authority (e.g. obligation to mantain
production which is based on industrial policy
concerns).
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Sales without an unconditional
bidding procedure
• Independent expert evaluation
• By one or more independent asset valuers
prior to the sale negotiations in order to
establish the market value on the basis of
generally accepted market indicators and
valuation standards.
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Asset valuer
An ‘asset valuer` is a person of good repute who
• has obtained an appropriate degree at a
recognized centre of learning or an equivalent
academic qualification,
• has suitable experience and is competent in
valuing land and buildings in the location and
of the category of the asset.
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Margin
• If, after a reasonable effort to sell the land and
buildings at the market value, the value set by the
valuer cannot be obtained, a divergence of up to 5 %
is in line with market conditions.
• If, the land and buildings cannot be sold at the lower
value, a new valuation may be carried out which is to
take account of the experience gained and of the
offers received.
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Notification to COM
• If there is no open, non-discriminatory and
unconditional tender, nor independent expert
evaluation
It should be notified to COM!
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State loans 1.
• Unlimited sources of the State
• Market economy creditor principle – by
analogy
• Advantage (State aid): if no market price is
paid (interest)
• Reference rate established by the Commission
– Base rate and risk premiums based on the
level of collaterals and individual risk of the
company
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State loans 2.
• 1 year interbank offer rate + premium
• Yearly interest – compound interest
• Reference rate currently:
– Eurozone: 1,73%
– HU: 5,61% (inflation: 4,7%)
• Used to calculate the present value (discounting base
rate + 1%)
• Special rules during the crisis: daily interbank rate is
accepted
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State loans 3.
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State loans 4.
• Risk assessment is important
• International rating companies or equivalent
national institution / banks
• Collateral level:
– LGD over 70% - high
– LGD 40-70% medium
– LGD under 30% low
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State loans 5.
• Start-up companies and companies without
rating → high risks + 4% if the collateralisation
is high
• Within the group no one can be better than
the mother company
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State guarantees 1.
• Notice of the Commission
– Defining cases when State guarantee is not
considered as aid
– Simplified rules for SME schemes
• Usually linked to loans, but special forms
(excluding the bankrupcy)
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State guarantees 2.
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Facilitates access to finance
Take over of losses
Obligations stemming from ownership
Back-up guarantee / recourse guarantee
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State guarantees 3.
• Market character is presumed if:
– Debtor is not in financial difficulty – can obtain
funds from the market without the state
– Guarantee is defined in time and amount
(unlimited is aid)
– Up to 80% of the base obligation
– Paying the market price accepted by the
Commission, proven by the MS, or based on the
reference rate
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State guarantees 4.
• In case of guarantee programs
– self-maintenance from the fees
– yearly supervision of the fees
– cost of capital should be covered as well
– safe harbour fees for SMEs
– simplification for SME schemes under EUR
2,5 million
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State guarantees – crisis measures
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Special form of guarantee is compatible aid
Up to 8 years
Fees set by the Commission
Discount for the first 2 years (15% for SMEs)
For large company only investment loans
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State guarantees – crisis measures
• Up to 80% of the loan
• Maximum amount of the loan: yearly personal
costs in 2010
• Investment loans: EU average wage can be
used (~3000€ / month / person)
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Risk capital 1.
• Risk capital measures shall take the form of
participation in a profit driven equity
investment fund managed on a
commercial basis.
• At least 50% of the fund shall be provided by
private investors (independent from the
company). Where investment funds are
targeted exclusively at SMEs in assisted areas,
this is reduced to 30%.
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Risk capital 2.
The measures are restricted to:
• seed capital, start up capital and/or expansion
capital for SMEs in assisted areas, and small
enterprises in non assisted areas
• seed capital and/or start up capital for
medium sized enterprises located in non
assisted areas.
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Risk capital 3.
• ‘seed capital’ financing provided to study, assess and develop
an initial concept, preceding the start-up phase;
• ‘start-up capital’ financing provided to undertakings, which
have not sold their product or service commercially and are
not yet generating a profit for product development and
initial marketing;
• ‘expansion capital’ financing provided for the growth and
expansion of an undertaking, which may or may not break
even or trade profitably, for the purposes of increasing
production capacity, market or product development or the
provision of additional working capital;
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Risk capital 4.
• At least 70% of the fund’s invested budget
must be in the form of equity or quasi-equity
• Investment tranches should not exceed €1.5m
per undertaking over any 12 month period.
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Risk capital 5.
To ensure that the measure is profit driven there
must exist:
• a business plan for each investment,
containing details of product, sales,
profitability development and ex ante viability
of project; and
• a clear and realistic exit strategy for each
investment.
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Risk capital 6.
To ensure the commercial management of the
fund there must exist:
• the managers remuneration is linked to performance
and setting out objectives of fund and proposed
timing of investments;
• private investors represented in decision making;
and
• best practices and regulatory supervision applied to
management of the funds.
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Risk capital 7.
• If the above conditions are not fullfiled 
evaluation on the basis of the balancing test
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