On 6 July 2020, the European Commission approved, under the state aid rules, a bond subscription facility of €18.7 million by the Malta Development Bank ("MDB") to support Mediterranean Investment Holdings p.l.c ("MIH"), a Maltese real estate developer with various projects in Libya.
State Aid Temporary Framework
The bond subscription facility was approved under the State Aid Temporary Framework (the "Framework") adopted by the Commission on 19 March 2020 in order to support the economy in light of the devastating impact which the COVID-19 pandemic had on the economy. The Framework (adopted under Article 107(3)(b) of the Treaty on the Functioning of the European Union (the "TFEU")) was subsequently amended on 3 April 2020, 8 May 2020 and 29 June 2020 to extend the types of support measures available.
Article 107 (3)(b) of the TFEU permits the European Commission to approve national support measures "to remedy a serious disturbance in the economy of a Member State" which affects the whole or an important part of the economy of that Member State.
The Framework acknowledges that the exceptional circumstances brought about by the COVID-19 outbreak have created severe liquidity shortages resulting in severe effects on small and medium sized enterprises, undermining their employees in the short and medium term and endangering their survival in the long term. The Framework recognises the need for appropriate state aid measures and close European co-ordination of national aid measures, with the main response coming from Member States' national budgets with the state aid rules permitting swift and effective action.
Mediterranean Investment Holdings p.l.c Bond Issue
MIH will issue a €20 million bond on the Malta Stock Exchange in order to redeem previously issued bonds and thus to cover its financial needs; and the MDB will underwrite the bond up to a maximum amount of €18.7 million with an annual interest rate of 5.5%.
Given that MIH is a subsidiary of Corinthia Group, the largest fixed-income security issuer on the Maltese Stock Exchange, the potential risk of the MIH bond being undersubscribed may have a broad effect on the Maltese financial market. Accordingly, the Commission justified to state aid to be provided by the MDB as being necessary and compatible for the proper functioning of the internal market in order to remedy the liquidity shortages faced by MIH as a direct result of the Covid-19 pandemic. In this regard, the Commission indicated that the above measures are in line with the conditions set out in the Framework and concluded that the measure is necessary, appropriate and proportionate in order to limit the serious disturbance on the Maltese economy based on Article 107(3)(b) TFEU and the provisions of the Temporary Framework.
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