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Ban on dividends, share buybacks for bailed-out EU firms

FILE PHOTO: Pedestrians walk past closed shops following an outbreak of coronavirus disease (COVID-19), in Brussels, Belgium, March 14, 2020. REUTERS/Johanna Geron/File Photo

BRUSSELS (Reuters) - Virus-hit companies bailed out by EU governments will face a ban on dividends, share buybacks and bonuses for so long as the state holds a stake in them, the European Commission said on Friday.

The EU executive, which has relaxed the bloc’s strict state aid rules since March, also said governments could grant subordinated loans on favourable terms to companies affected by COVID-19. Both measures aim to help firms avoid insolvency.

European Competition Commissioner Margrethe Vestager said that as the crisis evolved, many businesses would need capital to stay afloat.

“If member states decide to step in, we will apply today’s rules to ensure that taxpayers are sufficiently remunerated and their support comes with strings attached,” she said in a statement.

The Commission said recapitalisation aid could only be granted to avoid social hardship and market failure due to significant job losses, to prevent the exit of an innovative or a systemically important company, or to avoid the risk of disruption to an important service.

Listed companies will have to come up with a restructuring plan if the state continues to hold a stake after six years, while the deadline for non-listed firms is seven years.

There will be a cap on management pay, a ban on paying bonuses, and acquisitions of more than a 10% stake will not be possible until a company buys out at least 75% of the government’s stake.

Companies will have to report on how they use the state aid in line with the bloc’s green and digital objectives.

The recapitalisation plan is part of a strategy to prevent hostile takeovers of strategic firms by foreign buyers, many of which have seen their market value plunged due to the coronavirus outbreak and national lockdowns.

Reporting by Foo Yun Chee; Editing by Chris Reese, Kirsten Donovan