The “Financial Shield” programs are a part of the Polish Government-established “Anti-Crisis Shield” aid program, implemented by the Polish Development Fund. The programs, worth PLN 100 billion, aim to protect the labor market and to ensure companies’ financial liquidity in periods of severe economic disruption. Joanna Dynysiuk, Head of Legal, Anna Wawrzynczak, Office Director – Legal Office – Corporate, and Anna Blonska, Office Director – Legal Office – Investments, describe the programs and the legal work behind it.
CEEIHM: To start, please tell us a few words about the Polish Development Fund – the PFR.
Joanna Dynysiuk: Although the PFR is a relatively young organization, we have quite a long list of achievements and are a successful financial group operating within the new configuration of Polish developmental institutions. The group is led by Pawel Borys and its mission is to implement programs enhancing the long-term investment and the economic potential of Poland. We have made over 30 investments in a few short years, with the acquisitions of Bank Pekao, DCT Gdansk, PESA Bydgoszcz, and Polskie Koleje Liniowe being a few examples.
CEEIHM: What is the “PFR Financial Shield for Small- and Medium-Sized Enterprises” program in a nutshell and what is the role of the Polish Development Fund in it?
Joanna Dynysiuk: The Financial Shield is part of the government’s response to the coronavirus outbreak and aims to support businesses by bolstering liquidity, helping to cover costs of ongoing business operations, and maintaining employment.
It is intended for micro-, small-, and medium-sized enterprises which, as a result of the coronavirus, saw a decrease in monthly turnover of at least 25% in the period after February 1, 2020.
The program consists of two subprograms: (i) the Financial Shield for microenterprises offering in total PLN 25 billion, and (ii) the Financial Shield for small- and medium-sized enterprises which will receive up to PLN 50 billion. The financial support provided to entrepreneurs under the program is in the form of loan-like instruments (financial subsidies). Companies fulfilling the criteria of the program after 12 months may apply for a financial subsidy of which up to 75% may be redeemed. The rule is that the subsidy must be repaid within 24 months. The financing will be provided to companies until July 31, 2020.
To put it simply, the PFR’s activities in the program could be most easily compared to the activity of a bank: we had to raise funds for the program, enter into agreements with beneficiaries (indirectly, through the banks), distribute cash to the companies and, finally, collect cash from beneficiaries (the unredeemable part of the financial subsidies).
CEEIHM: This obviously caters to small- and medium-sized companies. What does the PFR offer to large companies?
Anna Blonska: For such companies, we have the “Financial Shield of the Polish Development Fund for Large Enterprises” program. This is for large enterprises employing 250+ employees and/or with an annual turnover in 2019 exceeding EUR 50 million and a balance sheet of more than EUR 43 million. While this is principally for large enterprises, subject to meeting certain additional criteria it is also possible for some small- and medium-sized companies to benefit from this support.
The program consists of four main instruments: liquidity loans, write-off loans, equity instruments offered in a public aid regime, as well as equity instruments offered on an arm’s-length basis.
In general, the financing for large companies will be provided until December 31, 2020.
To apply for support the entities must complete the application form found on our website. The applications are verified directly by our experienced Investment Team based on transparent and published criteria.
CEEIHM: How did the PFR raise the funds for both programs?
Anna Wawrzynczak: In order to distribute funds to Polish firms, the PFR launched a bond-issuing program of PLN 100 billion (EUR 22.1 billion) with bonds valued at PLN 1 million each. The fund-raising activity has been conducted in the domestic market so far but we don’t exclude reaching out to international investors in the future. The bonds are fully guaranteed by the State Treasury. The entire bonds program required close cooperation with the Polish Ministry of Finance. We also had to negotiate the terms and conditions of each issuance with the major banks distributing the bonds in the market and other financial institutions subscribing to the bonds. The financial instruments are registered with the National Securities Depository and listed on the Catalyst alternative trading system of the Warsaw Stock Exchange.
As you can imagine setting up the entire legal framework for the bonds program was a huge undertaking and required close collaboration between the major players, such as the government, banks, investors to which the issuances are addressed, depository, and the stock exchange. Given the urgent need for support of Polish entrepreneurs, we worked around the clock. Spring this year was exceptional due to the COVID-19 outbreak, but for those of us working on the resolution, it also meant working significant amounts of overtime to get the programs in place. We managed to raise the first funds in just three weeks instead of the usual few months. The first subsidies were distributed to firms just one day after the first series of the bonds were issued hitting a daily spend on SMEs of PLN 2 billion. Taking advantage of the Polish financial sector’s online banking platforms allowed for swift and secure distribution of the funds.
CEEIHM: What was the scope of work for the different legal teams involved – both that of your in-house team as well as legal advisors?
Anna Wawrzynczak: The PFR has been mandated to implement both the SME and large enterprise programs in its own name and on the behalf of the State Treasury. This means that PFR is legally the sole subject of all contracts entered by it in connection with the implementation of the programs.
The PFR’s main obligations include notifications to the European Commission, establishing a legal framework for cooperation between the government and PFR, raising external financing to fund the beneficiaries, distributing the financial support to the SME beneficiaries through online banking and to large corporates directly by our investment teams, handling complaints, and servicing the financial support until exit by way of subsidy redemption, repayment of the financing or sale of equity instruments (depending on the program). Even though the SME financial shield was implemented three months ago, there’s still a lot of operational work required from us until we exit from the programs.
As mentioned above, the Polish aid scheme to support the economy through the coronavirus outbreak, in line with other such European Union programs, needed notification to the European Commission. The legal negotiations, as well as all discussions with the government concerning the entrustment of the programs to the PFR and with all parties involved in the distribution of the subsidies to the SMEs were led by our internal team, with certain assistance from Allen & Overy. The SME program alone has 17 banks on board. Can you imagine negotiating the agreements with 17 banks in parallel? We also had to build the legal framework for the operation of the SME program, including terms & conditions and various agreements. The SME program was set up by our internal team supported by Allen & Overy.
The large enterprise program launched a month ago needed us to build the entire legal environment for the program operation, including templates agreements, internal procedures for liquidity loans, write-off loans, and equity instruments. This was done by our in-house team with the help of external advisors. Almost all procedures were prepared with the assistance of Linklaters. The program for large enterprises is a bit different since the entire operation of the program is done in-house. The investments through debt and equity are handled by our internal investments and legal teams, so the second part of the year will still be busy for the PFR.