Regulations on Foreign Direct Investment (FDI) are becoming increasingly influential, especially in M&A transactions. It is essential to consider how these regulations will affect foreign creditors, particularly those from non-EU countries. The Slovak FDI Act will have numerous implications for financing and security arrangements.
Security package
The establishment of a pledge over shares or assets of a Slovak company may qualify as a foreign investment if the pledge agreement grants specific rights to the pledgee regarding the company's business decisions. The mere establishment of the pledge itself could potentially trigger FDI screening.
Enforcement of security
Even if the initial establishment of a pledge did not trigger FDI screening, the enforcement of that pledge might. This should be evaluated from an FDI perspective, treating it as a standard M&A transaction.
Convertible rights
Convertible bonds or financing arrangements involving the acquisition of an equity stake in a borrower can trigger FDI screening in Slovakia. The screening occurs when the equity stake is acquired.
Acquisition finance
While the security package, enforcement of security and convertible rights apply only to non-EU creditors, certain M&A transactions involving intra-EU investors can also be subject to Slovak FDI screening if the financing is secured through funds provided by a third-country public authority or an entity with equity participation from a third country (such as the Norwegian Sovereign Fund).
What to consider
Is a there a non-EU element to your finance transaction, like a non-EU security agent or security agent with its ultimate beneficial owner outside the EU? Does your security agreement grant specific rights to the pledgee regarding the business decisions of the Slovak company?
Representations should be requested from investors regarding financing from public authorities. It is also worth noting that the enforcement of a pledge and convertible rights constitute an M&A transaction from the perspective of FDI screening.
Originally published 01 February 2024
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.