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In Spain, the impact of the coronavirus puts at risk the future of an important part of the business fabric, while waiting for the direct aid to be distributed to companies through the European pandemic recovery fund. In fact, the Government plans to approve next week the distribution of 11,000 million euros for companies.
However, the Minister of Finance, María Jesús Montero, indicated last month that the Executive was studying a formula to determine which companies will be viable if they receive direct aid with public funds and which will not, in order to speed up the distribution of these non-refundable subsidies and the restructuring of the loans guaranteed by the Official Credit Institute (ICO), which has distributed 118,000 million Euros in loans to companies.
Regarding the viability of Spanish companies, the Bank of Spain has published this Thursday the study Impact of covid-19 on the financial situation of non-financial companies in 2020, in which it states that 18% of Spanish companies are in a situation of insolvency due to the pandemic, given that their net debt exceeds their profit forecasts for the next 2 years by more than 12 times, according to Vozpópuli.
The government is considering offering aid to viable SMEs to compensate up to 75% of their 5-month turnover.
However, the monetary regulator has pointed out that half of these currently insolvent companies are viable in the long term, while the other 50% “in the long term, cannot cover their operating expenses with their income” and “their liquidation in an agile and efficient way” should be facilitated, according to the digital newspaper, which states that these unviable companies add up to 53,000 million euros in debt in credits.
Meanwhile, companies with viable business models should receive capital or be provided with a restructuring of their debts “introducing reforms in the mechanisms of judicial and extrajudicial insolvencies in order to make them more agile and efficient”, according to the Bank of Spain, which estimates at 51,000 million euros the debts of insolvent companies, but viable in the long term, of which 27,000 million correspond to SMEs and the self-employed.
In this way, the banks could help these debt restructurings of the viable companies that requested loans guaranteed by the ICO by increasing the payment terms, establishing grace periods, or even applying reductions to their debts, according to El País, which states that the entities and the Government should reach an agreement for these reductions, given that the ICO has guaranteed 72% of these loans.
If no agreements are reached to alleviate the debt burden of companies affected by the coronavirus, the percentage of non-viable companies could increase beyond that 18%. Thus, the General Council of Economists predicted in February that the insolvency rate could soar to 40% in 2021 due to the collapse of activity caused by the pandemic, despite the moratorium on insolvency proceedings in force from April until March 14, unless a further extension is granted.
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