$Unique_ID{COW02268} $Pretitle{427} $Title{Luxembourg Chapter 5B. Public Incentives, Part 2} $Subtitle{} $Author{Board of Economic Development} $Affiliation{Chamber of Commerce} $Subject{loans snci investment finance luxembourg term years enterprises equipment maximum} $Date{1990} $Log{} Country: Luxembourg Book: Investment in Luxembourg Author: Board of Economic Development Affiliation: Chamber of Commerce Date: 1990 Chapter 5B. Public Incentives, Part 2 5.1.4. The Societe Nationale de Credit et d'Investissement (SNCI) The SNCI - the National Credit and Investment Company - is a public law banking and savings institution. Established by the Law of 2 August 1977, it offers several loans and shareholding schemes: 1. Equipment loans BENEFICIARIES a) Commercial and craft enterprises which satisfy the criteria laid down by Article 1 of the Law of 20 July 1968 on the structural improvement of crafts and trades: - natural or legal persons operating a soundly managed craft, trade or commercial enterprise - cooperatives, associations or other bodies which serve the professional and material interests of all craftsmen, tradesmen and traders or of these occupations b) industrial enterprises with capital of less than 200 million francs c) hotels and restaurants. PURPOSE OF EQUIPMENT LOANS - Finance of equipment used directly in production or service activities, including safety and environmental protection equipment private vehicles and stocks of raw or finished products are excluded. - Finance of premises or parts of premises used exclusively for professional purposes parts of premises used for non-professional purposes and land are excluded. - Minimum investment: Lfrs 500.000, except in the case of initial establishment (first 3 financial years). EXTENT OF EQUIPMENT LOANS - Minimum per project: Lfrs 200.000 for enterprises starting up. - Maximum project: Lfrs 50.000.000 (unless specially authorised by the Minister for the Economy and the Minister of Finance). Equipment loans may cover a proportion of 25% to 60% of the cost of the eligible investment. In the case of initial establishment the proportion may be up to 75% of the eligible investment. A percentage and a sum are specified in the decision to grant an equipment loan. The percentage represents the level of SNCI participation in the project submitted. If the final investment is higher than the cost forecast, the amount of loan can be adjusted in terms of the specified level of participation. DISBURSEMENT OF EQUIPMENT LOANS Equipment loans are paid in one or more installments pro rata with the payments which have to be made towards the eligible investment (on the basis of invoices and other documents submitted for the purpose). TERM OF LOAN The term is set according to the nature of the investment, subject to a maximum of 10 years. The term may be extended to 15 years in special circumstances, subject to agreement of the Minister for the Economy and the Minister of Finance. In special cases a 2-year (maximum) moratorium on repayments may be allowed at the time when the loan is granted. INTEREST RATE The interest rate is a fixed rate of 4.50% per annum for the full term of the investment loan. There are no other charges. METHODS OF REPAYMENT Repayments are made quarterly in accordance with the schedule issued to the debtor. Repayments are usually calculated on a linear basis, but may be for reducing or increasing sums according to the nature of the investment or the financial situation of the enterprise. SECURITY Investors are usually asked to provide guarantees, if appropriate through the mutual guarantee company (societe de caution mutuelle) for the sector). In addition, SNCI has set up a guarantee fund which may be called in the event of final default on the part of the recipient of an equipment loan. APPLICATION Applications for equipment loans should be submitted to SNCI through the applicant's normal bank. The application is to contain a description of the investment, a finance plan and balance sheets for the previous three years. 2. Medium and long-term loans BENEFICIARIES a) Industrial enterprises b) Service enterprises which have a motor effect on the economy with capital amounting to at least 20 million francs. PURPOSE OF LOANS - Finance of equipment used directly in production activity, or in the provision of services, including safety and environmental protection equipment. Private vehicles and stocks of raw materials or finished products are excluded. - Finance of premises or parts of premises used exclusively for professional purposes parts of premises used for non-professional purposes and land are excluded. EXTENT OF MEDIUM OR LONG-TERM LOANS - Minimum per project: 5.000.000 francs - Maximum per project: 100.000.000 francs (special exceptions may be granted by the Minister of finance and the Minister for the Economy) - 25% to 50% of the global investment cost (in exceptional cases the maximum may be increased to 75%, subject to authorisation by the ministers). DISBURSEMENT OF LOANS The loans are paid in one or more installments pro rata with the payments which have to be made towards the eligible investment. Invoices and other documents have to be produced for this purpose. TERM OF LOAN The term is set according to the nature of the investment, subject to a maximum of 10 years. The term may be extended to 15 years in special circumstances, subject to the agreement of the Minister for the Economy and the Minister of Finance. In special cases a 2 years (maximum) moratorium on repayments may be allowed at the time when the loan is granted. INTEREST RATES The interest rate is a fixed rate for a minimum term of 5 years. The contract contains a review clause in respect of the subsequent period. The rate is based on the SNCI prime rate is force at the time when the loan contract is signed and is fixed by the Board of SNCI in terms of the refinancing costs involved. Other charges: none. METHODS OF REPAYMENT Repayments are made quarterly in accordance with the schedule issued to the debtor. Repayments are usually calculated on a linear basis, but may be progressive. SECURITY Recipients of medium and long-term loans are generally asked to provide real and personal guarantees. APPLICATIONS Applications should be submitted directly to SNCI. They should be accompanied by a detailed description and analysis of the proposed investment, with the relevant finance plan and balance sheets for the previous three years. 4. Loans to innovation BENEFICIARIES a) Industrial enterprises b) Service enterprises which have a motor effect on economic development (no requirement as to capital). PURPOSE OF LOANS Finance of expenditure directly associated with any research and development programme of an enterprise, which is intended to lead to the introduction of a new product or service, or to the development of new manufacturing or marketing procedures, inasfar as the expenditure concerned will result in the creation of assets which can be written down over a period in excess of one year, in accordance with current economic and financial criteria. EXTENT OF LOAN TO INNOVATION Innovation loans are generally for 25-50% of the eligible amount of the cost of a specific, clearly defined, research and development project. The amount is fixed in relation to any innovation subsidy granted by the Minister for the Economy. DISBURSEMENT OF INNOVATION LOANS Loans are generally paid in one or more installments after the recipient has provided evidence that the research and development project concerned is in progress. TERM OF LOAN 3-5-years according to the nature of the research and development programme. INTEREST RATE The interest rate is a fixed rate of 5% per annum. METHODS OF REPAYMENT Repayment are effected quarterly. Exemption from repayment may be granted for a maximum of 2 years. SECURITY Real and personal guarantees may be required. APPLICATIONS Applications should be submitted directly to SNCI. Applications are to be accompanied by a detailed description and analysis of the research and development project, as well as the expected benefits, the relevant finance plan and the enterprise's balance sheets for the previous three years. 5. Export credits BENEFICIARIES The Luxembourg exporter company applies for an export credit for a specified transaction. The action which gives rise to an export credit is a contract between seller and buyer specifying inter alia the full financial terms of the transaction. Export credits may be in the form of supplier credits or buyer credits. NATURE OF THE EXPORT Exportation of capital goods manufactured or services rendered by enterprises established in Luxembourg. In the case of exportation by an enterprise established in the country of products and/or services which form part of an integrated unit, or which part is of foreign origin, SNCI intervention is, in principle limited to the Luxembourg part of that unit. DETERMINATION OF THE AMOUNT OF CREDIT Eligible basis: value of the order, less the minimum installment covered by international standards. According to the Grand Ducal Decree, SNCI may cover the proportion of between 25% and 75% of the total value of the transaction to be financed. In practice SNCI accepts 50% of the export credit, as determined by the intermediary banking establishment. CONDITIONS Currency: Luxembourg francs or foreign currency. Interest: prime rate derived from cost of refinancing. The interest rate may be lowered by means of a COPEL interest rebate granted by the Minister for Foreign Affairs. The effective rate takes account of the rates of interest fixed by an arrangement adopted within the OECD on export credits receiving public aid ('OECD consensus'). Term: minimum 6 months, maximum 5 years, the maximum term may be extended to 10 years after authorisation from the competent ministers. SECURITY In general Office du Ducroire cover is required before an export credit is granted. There is a special SNCI guarantee fund for any losses on the proportion not covered by the Office du Ducroire. APPLICATION Application has to be made to SNCI through a banking establishment approved by SNCI for export credit purposes. 6. Share-holdings POTENTIAL BENEFICIARIES - Companies (societes anonymes or societes a responsabilite limitee) under Luxembourg law, which have their main establishment in the Grand Duchy of Luxembourg. - Subject to special authorisation by the competent ministers: foreign enterprises which supply the Luxembourg economy with raw materials and energy, or which promote the export of Luxembourg products. In general, the SNCI board excludes enterprises which are in competition with other enterprises in the same sector in the Luxembourg market. PURPOSE OF THE SHAREHOLDING - To promote, in the general interests of the economy, the creation, extension, conversion, reorientation and rationalisation of industrial and commercial enterprises. - Shareholdings are essentially temporary in nature. EXTENT OF SHAREHOLDING The amount is fixed in each case by the Board of SNCI and has to be approved by the competent ministers. Maxima are laid down by law, and these have to be observed, unless derogation is given by the Government in Council: 49% of the company's capital, 10% of SNCI's own resources. SNCI may require a participation only with the prior express approval of the board or directors of the applicant company. RETURN ON SHAREHOLDING SNCI has the same right as any other shareholder in the company. TERM In principle SNCI shareholdings are essentially of temporary nature. APPLICATIONS Applicant companies should apply directly to SNCI. 7. Equity participation loans. POTENTIAL BENEFICIARIES - Companies (societes anonymes or societes a responsabilite limitee) under Luxembourg law, which have their main establishment in the Grand Duchy of Luxembourg. PURPOSE To promote, in the general interests of the economy, the creation, extension, conversion, reorientation and rationalisation of industrial, craft and trade enterprises. EXTENT OF SHAREHOLDING The amount is fixed in each case by the Board of SNCI and has to be approved by the competent ministers (Finance and Economy). TERM OF EQUITY PARTICIPATION LOANS The term is contingent upon the finance plan which has been laid down beforehand, but is in principle for a maximum of 10 years. The depreciation plan may provide for exemption from capital repayments, according to the special characteristics of the enterprise concerned. RETURN OF EQUITY PARTICIPATION LOANS In principle the return is the same as that of the shareholders, but with a minimum of 4.5% per annum and a maximum of 15% per annu. SECURITY Under certain circumstances special guarantees, such as real or personal guarantees, may be required, in the same way as for normal loans. APPLICATION Applicant companies should apply direct to SNCI. 5.1.5. Third five-year programme for tourist infrastructure and the hotel industry From 1 January 1983 to 31 December 1987 the Government is authorized to subsidize projects for the establishment of regional tourist facilities carried out by individual or groups of municipalities, or for the modernization or rationalization of existing hotel installations. Criteria BENEFICIARIES Grants for existing hotel installations are awarded to the owners or managers of hotel businesses who undertake investment in businesses which are legally established and soundly managed, and which are in the general economic interest. INVESTMENTS CONSIDERED: The modernization, rationalization or extension of existing hotel premises, not including normal maintenance work and works of mere embellishment. Grants are made in the form of capital grants, to a maximum of 15% of the first Lfrs 25 million invested, and 7.5% of the next Lfrs 35 million. These grants may be taken in addition to other state investment incentives. Formalities An application should be submitted before work begins to the Ministere du Tourisme, 19-21 Boulevard Royal, Luxembourg. Advice and assistance may be obtained from the Chambre de Commerce du Grand Duche de Luxembourg, 7, rue Alcide de Gasperi Luxembourg-Kirchberg BP 1503, Tel. 43 58 53