“(…) the amounts due to shareholders/partners stood at RON119,338,940 at the end of 2013,” the Finance Ministry replied to ZF’s request for information.
In 2010, companies owned RON88 billion to their shareholders or partners, with the debt rising to over RON100 billion in 2011 and peaking at RON348 billion in 2012. The year 2013 saw a decline to RON119.4 billion, according to Finance Ministry data.
The volume of loans granted by banks to companies stood at RON112.3 billion at the end of 2013, up from RON104.6 billion in 2010.
Unlike other developed economies where shareholders contribute the funding towards the capital of their companies, owners in Romania prefer to lend the money instead. This was in part due to the economic crisis and the lack of enough funding options such as bank loans or the capital market.
There are mainly two cases when partners finance the companies they own via loans: companies with foreign shareholders and small and medium-sized businesses, which saw such loans as a solution for survival during the crisis and the money went towards vital payments like salaries, suppliers and taxes, analysts say. In case of foreign-held companies, the funds initially given as a loan can later be turned into a capital contribution if the business has good development prospects.
For many Romanian-held companies, funding via loans from their owners was a solution to survive during the crisis. Many small and medium-sized companies would not have been able to cope in the recession years had their owners not been willing to support them in the hope that they will one day get their money back when business picks up again.
“Money lent to companies usually goes towards vital payments that enable them to keep going: taxes, salaries, suppliers. Many such companies are insolvent by financial indicators and do not quality for bank loans, so the only ones that can still fund them are their shareholders,” says economic analyst Aurelian Dochia.
“The figures showing the total amount confirm that loans did go up during the crisis and are now going down as economic growth returned.”
Romania’s economy experienced two years of freefall in 2009 and 2010, and then three years of economic growth.
Banks were unable to stomach the impact of the economic decline. Whereas domestic currency loans showed signs of a rebound in the last few years, foreign currency loans continued to decline, so overall lending stayed in negative territory.
The economy grew by 3.5% in 2013, an unexpectedly high rate, while non-governmental lending fell by almost 5% in real terms, the steepest adjustment since the onset of the crisis. Lending was down again in 2014, while the gross domestic product rose by 2.9%.
Foreign-held companies prefer to bring the capital their companies would need from abroad, because financing solutions they have access to in their countries of origin are more convenient – it is usually about larger companies that have their own sufficient financial resources or can secure it from the banks they work with.
Direct lending by partners to their companies is a common practice in small and medium-sized businesses, as well as in foreign-held companies. In the absence of other funding solutions (bank loans), shareholders mostly get the money on their own (individual shareholders) or from the parent company and then lend it to the company in Romania, says Dragos Cabat, managing partner of Financial View.
“In some cases we are also talking about ways to ‘extract’ money from the company, when such loans are fictitious and serve as a cover for shareholders to take money out of the company on account of repayment of thereof.”
(English version by Loredana Fratila-Cristescu)