Serbian Government Introduces Recapitalization Measures to Support the Economy During COVID-19 Crisis

November 26, 2020

Serbian Government Introduces Recapitalization Measures to Support the Economy During COVID-19 Crisis

November 26, 2020

Radovan Grbović

Radovan Grbović


Katarina Petrović

Katarina Petrović


On 22 October 2020, the Government of the Republic of Serbia enacted the Regulation in order to determine the conditions and criteria for compliance of state aid through a recapitalization of market participants facing financial difficulties due to the epidemic of COVID-19 (hereinafter the “Regulation”).

The deadline for receiving state aid is September 2021.

Financial services market participants are excluded from applying under the Regulation.


Conditions for granting state aid through recapitalization

  • only market participants that were not in difficulties in terms of the Regulation on Rules for Granting State Aid on 31 December 2019 can apply, except the micro or small enterprises that were in difficulty on 31 December 2019, provided that they are not subject to bankruptcy proceedings and that they have not received state aid for remediation or restructuring.
  • market participants must be facing the risk of ceasing of operations or serious business difficulties, without the state aid;
  • that it is in the interest of the state to intervene (i.e. prevention of social difficulties and market failure due to significant drop in employment and other similar circumstances);
  • the market participants are not able to obtain financing on the market under affordable conditions, and the existing horizontal state aid measures are not sufficient to ensure their sustainability.
  • the market participant has submitted a written, reasoned request for the state aid grant to the provider, which should be filed to the State Aid Control Commission with the application for state aid.


Amount, compensation, and redemption of state aid through recapitalization

The provider can grant state aid through recapitalization individually or combining two types of instruments:

  • an equity instrument, by issuing ordinary or preferred shares, or in another way that directly acquires a share in the capital;
  • through the exercise of the right to profit-sharing, by an agreement on “silent” partnership without participation in management, convertible secured or unsecured bonds, warrants, or other instruments which indirectly acquires a share in the capital (hybrid instrument).

State aid through recapitalization must not exceed the amount necessary for the establishment of the capital of the beneficiaries that preceded the outbreak of the epidemic of COVID-19, on 31 December 2019. In this assessment, the state aid received or planned in connection with the outbreak of the COVID-19 epidemic is also taken into account.

The compensation for state aid through recapitalization represents the price – fee to the state, for investing in the capital of market participants, which differs depending on the recapitalization instrument used.

The purchase of recapitalization in the sense of this regulation refers to the payment of the entire amount of the state’s investment after the expiration of the agreed period, which also includes the mentioned compensation.

The state aid compensation may increase through a span of several years if the state did not sell a specific percentage of its share in the beneficiary. This measure aims to encourage the beneficiary to repurchase the investment of the state as soon as possible, which at the same time reduces the risk of distortion of competition.

The provider can always envisage other mechanisms provided that they lead to a similar outcome in terms of incentive effects and redemption of state aid through recapitalization and exit strategies of the state from the beneficiary’s capital.


Restrictions imposed on the state aid beneficiaries

Until the state aid through recapitalization is redeemed, the beneficiary cannot pay dividends or acquire or redeem shares except the state shares acquired on the basis of state aid through recapitalization. Bonuses, other variables, or comparable compensation of employees are not allowed until at least 75% of state aid through recapitalization has been redeemed.


Management and prevention of distortions of competition

State aid through recapitalization must not be used for the purpose of accelerated expansion of business, nor to take on increased business risks.

If the value of recapitalization of users with significant market power in at least one of the relevant markets in which it operates is higher than 250 million euros, the provider is obliged to propose additional behavioral measures or structural measures (e.g. alienation of shares) in order to maintain effective competition in these markets.

In principle, the beneficiary of the recapitalization measure may not acquire more than 10% of the shares in a competitor or other market participants in the same or similar activity, including a vertically connected market (participants operating at different levels of the production and turnover chain), until at least 75% of the recapitalization measure is redeemed or sold.

The stated ban on acquiring shares does not apply to micro, small and medium enterprises.


Exit strategy of the state from participation

If the value of state aid through recapitalization is higher than 25% of the beneficiary’s capital at the time of granting state aid, the beneficiary is obliged to develop an exit strategy of the state from the capital (proportional to the shares acquired on the basis of state aid through recapitalization), unless the value of the state shares on the basis of the recapitalization decreases below 25% of the equity capital within 12 months from the date of granting state aid.

This obligation does not apply to micro, small and medium enterprises.

The beneficiary is obliged to periodically submit a report to the provider on the progress in the implementation of the repayment schedule and compliance with the conditions of this Regulation.

The state aid provider, through the recapitalization of market participants, is obliged to keep records of granted state aid and to submit a report on state aid to the State Aid Control Commission no later than 31 December 2021.



Even though Regulation represents a try of the state to help market participants to overcome the economic difficulties due to COVID-19, written broadly it opens a lot of undefined questions. It is not known exactly which enterprises can count on this type of assistance, what amount the state has determined for the staid aid through recapitalization, who will choose which enterprises will receive assistance, and under what criteria. In the end, due to this and other indeterminism, the state aid through recapitalization can be given to whomever state chooses. It remains to be seen how this Regulation will be applied in practice.



This text is for informational purposes only and should not be considered legal advice. Should you require any additional information, feel free to contact us.


Radovan Grbović, Partner

Katarina Petrović, Associate


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