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EC Gives Green Light To French Guarantee Scheme For Financing Shipbuilding

by Ulrika Lomas, Tax-News.com, Brussels

18 May 2006


The European Commission has authorised a state guarantee scheme introduced by France which will apply to financial institutions providing loans and loan guarantees to French shipyards to finance the construction of large ships.

Under the scheme, guarantee premiums will be charged and vary according to the risk on a case by case basis. The premium level will cover the risks of payments and the administrative costs of the scheme, so that the scheme will be self-financing. As a result, the EC considers that the scheme does not threaten to distort competition in the Single Market.

Commenting, EU Competition Commissioner Neelie Kroes hoped that the scheme would give extra incentives for ship financing.

“Financial institutions remain reluctant to finance the construction of large ships, even for highly specialised, modern yards. I am therefore pleased to approve a scheme which is free of state aid and which can help French shipyards to raise finance," Kroes noted.

Loans, down payment guarantees and performance bonds granted to finance the construction of ships with a contract value larger than EUR40 million (US$51 million) will be eligible for state guarantees under the scheme.

The state guarantees will amount to a maximum of 80% of the guaranteed instrument. Yards in difficulties will be automatically excluded from the guarantee scheme.

Premiums charged by the state will vary according to the risk of the guaranteed project and will exceed the premium received by the financial institution on the non-guaranteed part of the loan/bond/guarantee. Yearly guarantee premiums will amount to at least 0.8%.

The premium level will be revised and adjusted on a yearly basis in order to verify that it covers the risks of payments and the administrative costs generated by the scheme.


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