The Association of Real Estate Companies of Estonia (Kinnisvarafirmade Liit) and seven real estate companies turned to the government and Kredex, noting that the loan of approximately €40 million to be given to Porto Franco would create a dangerous precedent and give the development approximately €20 million in potentially unlawful state aid, something which could attract the attention of the European Commission.

The real estate companies noted that Porto Franco OÜ is a company which does not currently have any cash flow from economic activities, as it is a real estate development that is still in the early stages of construction - in the ferry harbor district of the capitl.

Porto Franco CEO Rauno Teder sent a reply to the statement on Thursday in which he stated that the claim of the real estate companies that the construction activities of the development were already delayed before the COVID-19 crisis is not true. 

He penned: "The Estonian government declared an emergency situation on March 12, but the construction work was taking place both before and after. In reality, the construction work later stopped gradually during the spring, when we started to exchange labor from elsewhere for local builders."

In their address, the real estate companies wrote that Porto Franco's needs had nothing to do with the objectives of the crisis measures and the principles of the temporary framework for state aid, nor is the economic content of the proposed support working capital financing.

Teder responded: "Before the declaration of an emergency situation due to the coronavirus pandemic, Porto Franco had entered into a syndicated loan agreement with banks for a loan of €102 million at the end of February. When the emergency situation stalled the economy, additional collateral had to be found. For this purpose, we are applying for bridge financing from KredEx, which we will repay together with interest."

He added that the development is currently at a stage where the necessary resources are contractually available, but sudden changes in the economy make it nearly impossible to meet preconditions for disbursements.

According to the signatories of the letter, the loan to Porto Franco on the terms envisaged would involve a financial advantage from the state of at least €3.2 million per year, meaning a total of €20 million over six years.

On July 30, ERR News wrote government approved a working capital loan to the development of Porto Franco which will be managed by KredEx.

The total amount borrowed is €39.4 million and is set for the next six years with an interest of 12-month Euribor plus 2 percent per annum, the contract fee is 0.2 percent of the loan limit amount.

The loan limit can be used in installments - the minimum size of each installment is at least €5 million and the maximum size €15 million.

The decision was met with criticism, as some of the country's largest developers, together with the Association of Real Estate Companies turned to the government as well as KredEx, saying the loan creates a dangerous precedent and is a misuse of the coronavirus state aid package outlined in a supplementary budget the government issued in the wake of the pandemic.

Reform Party MPs also wrote to Prime Minister Jüri Ratas (Center), asking for an explanation of how the developers of the 150,000-square meter plot near Tallinn harbor qualify for KredEx loans. The company had already received a joint loan of over €100 million from the European Bank for Reconstruction and Development (EBRD) and Estonian bank Luminor.

KredEx: Statement made by real estate firms contains errors

The state-run KredEx foundation responded to the memorandum presented by real estate developers, pointing out two aspects in which they state the memorandum is inaccurate.

The foundation announced on Thursday: "They have referred to the terms and conditions of the extraordinary working capital loan. We would like to point out that separate service conditions have been established for projects of national importance.

"Kredex follows state aid rules and while handling the application also takes into consideration that the loan to be issued should be compatible with state aid rules; in case of any suspicions of the loan not adhering to state aid rules, naturally, it will not be issued."

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