July 2, 2020 / 12:22 PM / a month ago

Spain to pass 50 billion corporate aid package, sets up fund to boost solvency

MADRID (Reuters) - Spain will approve 50 billion euros ($56.4 billion) as part of a new set of measures, which includes setting up a fund to boost companies’ solvency, in an attempt to revive the coronavirus-hit economy, Prime Minister Pedro Sanchez said on Thursday.

FILE PHOTO: Spanish Prime Minister Pedro Sanchez takes part in a working session during the G5 Sahel summit in Nouakchott, Mauritania June 30, 2020. Ludovic Marin /Pool via REUTERS

The announcement was part of other proposals such as tax reform partly focused on raising taxes on larger companies rather than smaller ones.

Sanchez said in an interview with La Sexta on Thursday that the new measures were “linked to (boosting) solvency and investment.”

A government source told Reuters earlier that Spain would approve this package at an extraordinary cabinet meeting on Friday.

As part of the aid package, the government will implement a 10 billion euro fund to potentially bail out companies in “strategic sectors” that are considered viable but are experiencing solvency problems after almost three months of lockdown, two government sources confirmed to Reuters.

The state will be able to temporarily enter the capital of these companies through the state-owned industrial holding company SEPI, which falls under the umbrella of the Budget Ministry.

The SEPI is currently a significant shareholder in technology firm Indra, which supplies everything from air traffic control systems to electronic polling stations, and from air defence systems to battlefield management systems.

“There will be other measures such as granting of participatory loans,” one of the sources said.

The measures were also aimed at improving the financial structure of companies to lower their risk of defaulting on their payments with lenders, the source added.

Last month, Bank of Spain Governor Pablo Hernandez de Cos said it was urgent to review processes of restructuring, insolvency and easing companies’ financial burden.

In March, the government approved state-backed credit lines of up to 100 billion euros to help support mainly small and mid-sized companies and self-employed against the fallout from the pandemic.

EU BATTLE

Policymakers in Europe have been discussing options for getting more equity, rather than debt, into businesses but few countries have ready-made vehicles for funnelling mass investment into SMEs.

While several governments have set aside funds for capital injections into large companies, they are having to think up innovative options for smaller firms.

On Thursday, Sanchez said it was “imperative and necessary” for the European Union to reach an agreement on a commmon recovery fund by July, but warned that negotiations were set to be a “big battle.”

EU members agreed in June that economic action was urgently needed but remain divided over the value of loans or grants to be provided and if the program should last two or three years.

“We believe it should be four years,” Sanchez said, adding that passing a 2021 budget would depend heavily on the outcome of the talks.

After years of political instability, Sanchez’s government has failed to pass its own budget, instead rolling over one from 2018 drafted by his conservative predecessor Mariano Rajoy.

Sanchez said he would meet with his Dutch counterpart Mark Rutte, an advocate for a smaller, loans-based program, on July 16 to discuss the fund.

Reporting by Belen Carreno and Jesús Aguado; additional reporting by Nathan Allen, Inti Landauro and Emma Pinedo; writing by Jesús Aguado; editing by Andrei Khalip and Angus MacSwan

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