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Alternative investment fund approved to help businesses through coronavirus crisis

The Cabinet of Ministers at its July 14 meeting approved the draft resolution “Regulations on capital investments in enterprises whose operations have been affected by the spread of Covid-19”, which sets out the rules for the establishment of alternative investment funds for the support of large enterprises affected by the economic impact of COVID-19.

The fund is being created with the aim to support well-managed enterprises that have nevertheless run into temporary difficulties as a result of the Covid-19 crisis, as well as large enterprises that need to change their business model, adjusting product development, introducing new technology and expanding to new export markets. The fund will be managed by state-owned development bank Altum.

The fund’s total size will be EUR 100 million, consisting in equal parts of public and private financing – EUR 50 million worth of public funds and EUR 50 million raised from  companies managing state-funded pension schemes. The share of public funding will not exceed 50% of the fund’s total capital. The alternative investment fund will make investments of up to EUR 10 million in companies’ capital, quasi-capital and corporate bonds.

The plan is to provide support to 20 to 30 large enterprises through the fund.

Jānis Vitenbergs, Minister of Economics said: 

“The new support program will help companies overcome the current challenges posed by the Covid-19 crisis, faster reorient according to the global situation and find new business niches, develop new business projects that will contribute to their further growth. The capital fund is targeted at economically viable and well-managed businesses that operate in high value-added industries, employing a large number of people, making large mandatory state social security contributions and personal income tax payments to the state budget, and creating innovations - companies that are systemically important to a given industry.”

The fund will be operated according to commercial principles. By making investments in enterprises, the fund’s manager will evaluate the companies’ viability and vision on how they will cope with the virus’ impact on the company’s business. The fund’s manager will also provide an assessment of each investment’s clear and realistic exit strategy following the investment period, which is planned to be four to five years. The fund’s investments are not intended for enterprises that have run into financial difficulties before December 31, 2019.

Reinis Bērziņš, ALTUM Board Chairman said: “It is important that the fund will not only provide enterprises with the necessary cash flow if they cannot secure it on their own, but will also help them transform qualitatively, because one of the preconditions for receiving the support is the company’s activities aimed at sustainability and export solutions, resulting in better management and increased competitiveness. As an essential additional benefit, the fund will mobilize private investors and its instruments will promote activity on the capital market. Together with the fund’s private investors, we are setting up a strong management team, attracting top-class investment professionals from the private sector who will be not only making investment decisions but will also be able to ensure the supervision of the companies’ transformation.”

Large companies with at least 250 employees will be considered eligible. In total, there are around 200 large companies in Latvia and 25 to 30 companies could benefit from existing fund volumes, Bērziņš told Latvian Radio July 14.

Bērziņš also said the fund could start work within a couple of weeks.

The fund’s investments will target economically viable and well-managed enterprises, companies operating in high value added industries, employing a large number of people and making significant social security contributions and personal income tax payments into the government budget, enterprises that are involved in innovation and/or manufacture of innovative products, and enterprises of systemic importance, a release from the cabinet said. 

On 6 July the European Commission has approved Latvia's plan to set up a fund.

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