Financial measures in the Netherlands to combat coronavirus impact for corporates
Developments regarding the coronavirus (COVID-19) are quickly following each other at the moment. Therefore, it can be hard to keep track of all the supporting measures governments and European central bodies are taking to support companies and the economy. This article aims to give a clear overview of those measures and to give corporates some hands-on advice on possible actions that can be undertaken.
Most important measures by Dutch government to support companies
CFO’s, Treasures and Corporate Finance managers are currently facing unprecedented circumstances. Because of the current uncertainty, financing windows are (temporarily) closing and working capital is under pressure. This means that the old adage of ‘cash is king’ is more true than ever. There are several critical measures a company needs to focus on that can help in preserving cash and maintain current financing (for more information see the following article). However, because of the high level of uncertainty it is wise to also have a good understanding of the governmental and macro-economic measures that are currently being developed. The Dutch government has announced economic measures aiming to protect jobs and income as well as to absorb the consequences for self-employed professionals, SME entrepreneurs and large companies. The measures ensure that companies can continue paying their staff, bridge the gap for self-employed workers and allow flexible financing arrangements. The focus in the list below is on those that are most relevant for corporates.
- Initiation of ‘Noodmaatregel Overbrugging voor Werkbehoud’ (NOW)
This measure is temporarily replacing the original ‘werktijdverkorting’ (WTV). The NOW measure aims to compensate employers for personnel costs and therefore ensuring that employers will not fire their employees. In order to apply for this measure, a company must expect a decrease in revenue of at least 20%. If that is the case, the Dutch government will take over up to 90% of the personnel costs, this also applies to part time employees and temporary workers.
What it means for you
Even though the exact classification of the compensation in the income statement is an accounting discussion, for now it is fair to assume that the negative effects on your EBITDA and operational cash flow are softened a bit due to the NOW measure. Whether it helps in your financial covenant testing depends on the exact definition of EBITDA in your financial documentation as well as the eventual accounting classification.
What will remain in the short-term is uncertainty regarding the timing of your cash flows as currently the details of the arrangement still need to be worked out by the government. At this point it is not clear for example what kind of evidence needs to be supplied and when a possible compensation is due. This means that for the short-term pressure on working capital remains high and optimizing your cash flow forecast still should be at the top of your priority list.
- Expansion of ‘Garantie Ondernemersfinanciering’ (GO-financing)
The GO-financing already existed and was created for corporates to arrange financing from banks. There are no hard criteria to be eligible for a GO-financing, it is only important to have a substantial part of your business in the Netherlands and to have solid profitability and continuity plans. Originally, the Dutch government guaranteed 50% of loans up to EUR 50m under the GO-financing. This limit has now been increased to EUR 150m. This means that if a company requires a loan of EUR 150m from a participating bank, the bank only has an exposure of EUR 75m, the other EUR 75m is guaranteed by the Dutch government. A similar scheme has been created for companies that are stimulating energy efficiency.
What it means for you
Due to the GO-financing, it is easier for corporates to arrange financing, even in these difficult times. If your financial corona scenario analyses show that there might be a liquidity issue in the (nearby) future, it is advised to understand the possibilities for additional liquidity from your banks. The GO-financing can help the banks to take away a part of the exposure and therefore still provide liquidity to corporates. This should help at least somewhat in all the liquidity and working capital challenges that you might face during the corona crisis.
- Deferment of tax payments
The Dutch tax authority (‘Belastingdienst’) will simplify the process of requesting the temporary deferment of tax payments. This will apply to a.o. corporation- and revenue tax. The tax authority will stop the collection immediately and default fines will not have to be paid. More importantly in the short-term it will not be necessary to supply evidence. The recovery interest which is normally due after the payment date has expired, as well as the tax interest, will be lowered to (almost) 0%.
What it means for you
If you face short-term liquidity issues, this could be a useful measure from the Dutch government. You will get a deferment of tax payment of at least three months, which should give some relief on the pressure of your cash flows. If you need more time than the standard three months, you could apply for more time, but additional proof is required in that case. Obviously, this measure is not a long-term solution, as you would still need to pay the taxes. It is merely a short-term liquidity solution, that could give you more time to arrange additional financing.
In other countries comparable measures are being taken. For example, in the UK a job retention scheme is initiated. This means the government will support 80% of the salary of furloughed employees to a maximum of £2,500. Furthermore, a business interruption loan scheme is under construction as well as the possibility of the deferment of tax payments. Other European countries are (in the process of) implementing similar measures.
Most important measures by European central bodies
The European Central Bank (ECB) has taken quite some actions to support both banks and companies. They are all aiming to incentivize them to provide liquidity for companies that need it most in the upcoming, uncertain, period. Next to that, the ECB has announced that it will launch a EUR 750 billion Pandemic Emergency Purchase Programme (PEPP). This PEPP will be additional to the EUR 120 billion Purchase Programme that was announced earlier. The EUR 750 billion PEPP will be used to buy sovereign and corporate bonds and will provide liquidity in the market.
The European Investment Bank (EIB) announced it would mobilise EUR 40 billion in response to the economic impact of COVID-19. The financing package also includes liquidity lines up to EUR 10 billion to banks to ensure additional working capital support for SMEs and mid-caps.
The Dutch Central Bank lowered the Systemic Risk Buffer applicable to the largest three banks (ING, Rabobank, and ABN AMRO), freeing up EUR 8 billion in extra capital, which the Central Bank expects will increase lending capacity with EUR 200 billion.
Even though the government and European central bodies are, as mentioned above, currently undertaking a wide range of measures to support the economy, there are still numerous challenges currently facing Finance- and Treasury managers. Preservation of cash and maintaining a solid financing structure are among the most pressing issues. The support programmes listed in this article can help in achieving these goals.
Should you want to know more or need any help you can contact us.