On Approval of the State Programme for the Support of Investment Funds

 

 

Ordinance of the Government of Georgia No 361

 

On Approval of the State Programme for the Support of Investment Funds

 

This Ordinance shall enter into force upon its promulgation.

 

 

Prime Minister                                                               Irakli Kobakhidze  

 

   

State Programme for the Support of Investment Funds

 

Chapter I – General Provisions

 

Article 1 – Definition of terms

a) Programme − the State Programme for the Support of Investment Funds;

b) Corporation − JSC Georgian Economic Development Corporation;

c) Board − the Supervisory Board of the JSC Georgian Economic Development Corporation;

d) Investment Fund − an authorised, recognised, registered, and/or foreign investment fund as provided for by the Law of Georgia on Investment Funds;

e) asset management company − a licensed, registered, foreign and/or recognised asset management company as provided for by the Law of Georgia on Investment Funds;

f) small and medium-sized company/business entity − for the purposes of this Programme, a legal entity registered in accordance with the Law of Georgia on Entrepreneurs, whose accumulated total income for the previous business year does not exceed GEL 60 million;

g) committed capital – the amount that a partner undertakes to contribute to the capital of an investment fund;

h) target fund size – the estimated amount of capital determined by an Investment Fund, which is planned to be raised at the stage of final formation of the capital/final closing of the Investment Fund;

i) bank – a commercial bank as determined by the Law of Georgia on Commercial Bank Activities or a micro-bank as determined by the Law of Georgia on the Activities of Micro-banks;

j) related party – a related party as determined by the Law of Georgia on Competition.

 

Article 2 – Objective and description of the Programme

1. The Programme aims to establish investment funds and stimulate their activities in order to increase access to finance and to support economic development.

2. The Programme covers the following two directions:

a) the direction of mechanisms supporting the activities of the Iinvestment Funds:

a.a) a component for the co-financing of the initial expenses related to the establishment of an Investment Fund;

a.b) a guarantee component;

a.c) a component for the co-financing of the Investment Fund management fee;

a.d) a technical assistance component;

b) the direction of investments in the capital of Investment Funds.

3. Investments in the capital of the Investment Fund shall be made through the equity participation (holding units) by the Corporation in the Investment Fund capital, in compliance with the requirements of Article 5(7¹) of the Law of Georgia on Investment Funds.

4. An Investment Fund shall be authorised to use any component referred to in paragraph 2(a.a) and/or (a.b) and/or (a.c) and/or (a.d) of this article only once.

 

Chapter II – Direction of Mechanisms Supporting the Activities of the Investment Funds

 

Article 3 – Component for the co-financing of the initial expenses related to the establishment of an Investment Fund

1. The purpose of the component for the co-financing of the initial expenses related to the establishment of an Investment Fund is to facilitate the establishment of investment funds by co-financing the initial expenses related to their establishment.

2. The type of expense(s) to be reimbursed within the framework of the component shall be determined by the Director of the Corporation, in agreement with the Board.

3. Following the enrolment of the asset management company in the component, the Corporation shall reimburse 50% of the initial expense(s) incurred/to be incurred for the establishment of an Investment Fund, but not more than GEL 300 000.

4. The component shall not cover the co-financing of the initial expenses related to the establishment of the Investment Fund that has been established by an asset management company which is a related party to a bank.

 

Article 4 – Guarantee component

1. The purpose of the guarantee component is to reduce the loss (damage) for the investors of an established Investment Fund, in the case if the Investment Fund fails to fully repay the committed capital to the investors.

2. Investment Funds/asset management companies shall be able to use the guarantee component after the relevant amendments are made to the State Programme on the Credit Guarantee Scheme, approved by Ordinance No 163 of 29 March 2019 of the Government of Georgia.

 

Article 5 – Component for the co-financing of the Investment Fund management fee

1. The purpose of the component for the co-financing of the investment fund management fee is to mitigate the operational costs of the Investment Fund, which are included in the Investment Fund management fee.

2. The Corporation shall co-finance not more than 50% of the Investment Fund management fee (‘the management fee’), but by not more than:

a) 1.5% of the committed capital per annum, if at the time of the request, the amount of the committed capital of the Fund is up to GEL 60 million;

b) 1% of the committed capital per annum, if at the time of the request, the amount of the committed capital of the Fund is from GEL 60 million to GEL 150 million;

c) 0.7% of the committed capital per annum, if at the time of the request, the amount of the committed capital of the Fund is GEL 150 million or more.

3. The Corporation shall co-finance the management fee accrued over the subsequent 36 months and requested over the subsequent 40 months from the date of enrollment of the Investment Fund in the component.

4. Within the framework of the component, the total maximum amount of co-financing shall be GEL 3 million for one Investment Fund.

5. Within the framework of the component, an asset management company/Investment Fund shall be authorised to request from the Corporation the reimbursement of the amount at any intervals, but not more than once a month. In addition, the Corporation shall reimburse the co-financing amount if all partners of the Investment Fund have fulfilled their obligation to pay their share of the management fee (without the co-financing from the Corporation) in accordance with the founding document of the Investment Fund.

6. The Corporation shall provide co-financing in the currency specified in the founding document of an Investment Fund and/or in the national currency, however based on the official exchange rate established by the National Bank of Georgia on the date of transfer of the co-financing amount by the Corporation.

7. Within the framework of the component, co-financing of the management fee payable by a partner, that is a bank and/or a related party to a bank, shall not be co-financed.

 

Article 6 – Technical assistance component

1. The technical assistance component provides the co-financing of training and/or consulting services for small and medium-sized business entities established in Georgia, in which an Investment Fund has invested upon its inclusion in the component.

2. The Corporation shall be authorised to determine, within the framework of the component, all types of expenses to be reimbursed, types of services, and other additional requirements related to reimbursement.

3. Within the framework of the component, the Corporation shall reimburse not more than 50% of the expenses incurred/to be incurred.

4. In the case of multiple use of the technical assistance component by one business entity, the amount of co-financing by the Corporation shall not exceed GEL 150 000.

5. The amount of co-financing within the framework of the component for one Investment Fund shall not exceed GEL 3 million.

6. The Corporation shall provide co-financing within the framework of the component for not more than 10 years from the moment of inclusion of the Investment Fund in the component.

 

Article 7 – Requirements for Investment Funds particpatng in the Programme

1. An I nvestment Fund intending to particpate in the component(s) determined by this Chapter shall, upon submitting an application under Article 8(1) of this Programme, meet the following criteria:

a) it shall be an Investment Fund established after the entry into force of this Programme;

b) it shall be an Investment Fund established not more than two years ago, whose committed capital by the time of submission of application to the Corporation shall not exceed 50% of the target fund size. This requirement shall not apply to the component specified in Article 3 of the Programme, because an Investment Fund shall not have been established by the time of submission of application to the Corporation;

c) at least 80% of the capital of the Investment Fund will be invested in companies established in Georgia;

d) the Investment Fund will not invest in companies that carry out the economic activities listed in Annex No 1 to this Programme;

e) at least 60% of the capital of the Investment Fund will be invested through private equity investments.

2. In addition to the requirements set out in paragraph 1 of this article, the Director of the Corporation shall, in agreement with the Board, be authorised to determine additional criteria/requirements for the inclusion of Investment Funds and/or asset management companies in the components.

3. The Investment Fund(s) in which the Corporation participates in accordance with Chapter III of this Programme shall also be eligible to particpate in the component(s) determined by this Chapter.

4. If an Investment Fund/asset management company fails to comply with the requirements of paragraph 1 of this article, the Corporation shall be authorised to determine a reasonable time frame for the Investment Fund/asset management company to remedy the non-compliance, otherwise the Corporation shall terminate its support within the framework of the Programme. In the case of failure to remedy the non-compliance within the established time frame, the Investment Fund/asset management company is obliged to fully repay the funds transferred by the Corporation within the framework of the Programme.

 

Article 8 – Procedure for the implementation of the direction of mechanisms supporting the activities of the Investment Funds

1. An Investment Fund/asset management company intending to participate in the component(s) determined by this Chapter shall submit an application thereon to the Corporation.

2. The Director of the Corporation shall, in agreement with the Board, establish the procedure (methodology) for evaluating the submitted applications, and the requirements for such applications (including the list of mandatory documents to be submitted, the form of their submission, etc.). In addition, the Corporation shall form an application evaluation commission, the members of which shall be the representatives from the Corporation, the Ministry of Economy and Sustainable Development of Georgia (‘the Ministry’) and the Administration of the Government of Georgia.

3. The evaluation commission shall, within 60 calendar days from the date of submission of an application under paragraph 1 of this article, evaluate the submitted application, verify the compliance of the Investment Fund/asset management company with the Programme requirements, and make a decision on the inclusion of the Investment Fund in the component(s) of the Programme.

4. In accordance with paragraph 3 of this article, upon confirmation of the application by the commission, an agreement shall be concluded between the Corporation and the Investment Fund and/or asset management company, which shall determine the procedure for implementing a component and other material terms and conditions.

 

Chapter III – Direction of Investments in the Capital of Investment Funds

 

Article 9 – Purpose of the direction of investments in the capital of Investment Funds and the stages of its implementation

1. Within the framework of the direction of investments in the capital of Investment Funds, investments in the capital of the Investment Fund shall be made through the equity participation (by holding units) by the Corporation in the mentioned Investment Fund capital, in compliance with the requirements of Article 5(7¹) of the Law of Georgia on Investment Funds.

2. The stages of implementation of the direction determined by this Chapter shall be the following:

a) receiving applications by the Corporation from asset management company (companies)/Investment Fund(s), which may be carried out in the following two ways:

a.a) the announcement of a competitive selection process by the Corporation in order to select the asset management company(companies)/Investment Fund(s); or

a.b) the offering by the asset management company/Investment Fund to the Corporation of the equity participation in the capital of the Investment Fund;

b) the establishment by the Corporation of a commission for evaluating the applications submitted under paragraph 2(a) of this article, the members of which shall be the representatives from the Corporation, the Ministry, and the Administration of the Government of Georgia, and if necessary, independent member(s) with relevant experience;

c) the evaluation by the commission of the asset management company(companies)/Investment Fund(s) and the proposals submitted by them;

d) the conducting of negotiations between the Corporation and the asset management company(companies)/Investment Fund(s):

d.a) in the case of a competitive selection process announced under subparagraph (a)(a.a) of this paragraph, a ranked list shall be drawn up based on the results of the commission's evaluation, from which the Director of the Corporation shall, in agreement with the Board, decide how many asset management companies/Investment Funds will be invited to the negotiations stage;

d.b) in the case of an offer submitted under subparagraph (a)(a.b) of this paragraph, the commission shall decide, based on the evaluation of the mentioned offer, on the matter of inviting the asset management company/Investment Fund to the negotiations stage;

d.c) the negotiations referred to in this subparagraph shall concern the conditions for the establishment of an Investment Fund (if the Investment Fund has not yet been established) and for the equity participation of the Corporation in the capital of the mentioned Fund;

d.d) the negotiations stage shall be completed within not later than 3 months from the date of the invitation to the negotiations of the asset management company (companies)/Investment Fund(s). The Director of the Corporation shall be authorised, in agreement with the Board, to extend the negotiations stage for a period of not more than 3 months. If the Corporation and an asset management company/Investment Fund fail to reach an agreement within the mentioned time frame, the process shall be terminated;

e) in the case of successful conclusion of negotiations, the asset management company/Investment Fund shall, within the time frame established by the Corporation, submit to the Corporation the founding documents of the investment fund and/or the complete documents required for the equity participation of the Corporation in the capital of the Investment Fund;

f) the Corporation shall submit the documents prepared by the asset management company/Investment Fund to the Ministry, for the purpose of their subsequent submission to the Government of Georgia;

g) if the Government of Georgia approves the submitted documents, the Corporation shall be authorised to participate in the capital of the established Investment Fund/Investment Fund to be established, through equity participation;

h) a relevant agreement shall be concluded between the Corporation and the asset management company/Investment Fund on the equity participation of the Corporation in the capital of the Investment Fund;

i) after the stage referred to in subparagraph (h) of this paragraph, the Corporation shall appoint one representative to the Limited Partner Advisory Committee of the Investment Fund.

3. The Director of the Corporation shall be authorised, in agreement with the Board, to make a decision on the termination of the process at any stage referred to in paragraph 2(a)-(f) of this article.

4. The Director of the Corporation shall, in agreement with the Board, determine the conditions for the implementation of the stage(s) referred to in paragraph 2 of this article, including the procedure for selecting/evaluating asset management companies/Investment Funds, the evaluation criteria, the procedures to be implemented, the time frames, the rules of operation of the commission, and other conditions.

5. If the asset management company selected for the Investment Fund in accordance with paragraph 2(g) of this article is a related party to the bank, in such a case the I nvestment Fund shall not invest in a related party to the same bank.

6. An Investment Fund/asset management company shall ensure that the company, in which it or the Investment Fund under its management holds an equity interest, is restricted from obtaining a loan from a party related to the Investment Fund/asset management company.

 

Chapter IV – Source of the Financing of the Programme and Monitoring

 

Article 10 – Source of financing of the Programme and the rules of management of funds

1. The source of financing of the Programme directions shall be the appropriations allocated from the state budget for the Programme, and/or the monetary resources accumulated by the Corporation within the framework of the State Programme on the Credit Guarantee Scheme, approved by Ordinance No 163 of 29 March 2019 of the Government of Georgia (total funds, excluding the appropriations allocated for the Programme from the state budget), and/or the funds accumulated under paragraph 2 of this article, and/or other funds determined under the budget of the Corporation.

2. The funds accumulated within the Programme shall be any income received by the Corporation within the framework of this Programme, the funds repaid to the Corporation by an asset management company/Investment Fund, the funds paid under paragraph 5 of this article, and the funds not utilised by the asset management company/Investment Fund within the framework of the Programme. The Corporation shall be authorised to use the funds accumulated within the Programme for achieving other objectives specified in this Programme and/or the statute of the Corporation.

3. The projects to be implemented under the Programme may also be financed with the funds provided by international and/or donor organisations, as well as other funds permitted by the legislation of Georgia. In this case, full/partial financing may be provided through a donor organisation and/or transferred to the Corporation's own revenue account with the State Treasury (‘Corporation's revenue account with the Treasury’).

4. The Director of the Corporation shall, in agreement with the Board, determine the annual budget of the Programme.

5. In order to secure the funds intended for making contributions by the Corporation to the capital of the Investment Fund as determined by the agreement concluded in accordance with Article 9(2)(h) of this Programme:

a) within the framework of the appropriations allocated for the Programme from the state budget of the same year, based on the official application of the Corporation, the Ministry shall transfer the funds allocated for the Programme from the state budget to the Corporation's revenue account with the Treasury;

b) within the framework of the appropriations allocated for the Programme from the state budget of the following year, if the funds transferred under subparagraph (a) of this paragraph are not sufficient to fully make the planned contributions, based on the official application of the Corporation, the Ministry shall transfer the mentioned funds to the Corporation's revenue account with the Treasury within the framework of the appropriations allocated for the Programme from the state budget of the following year(s). In addition, the transfer of the funds by the Ministry to the Corporation's revenue account with the Treasury in the following year(s), as provided for by this subparagraph, shall not be considered as settlement of obligations of the previous period.

6. According to the procedures and form provided for in the agreement concluded under Article 9(2)(h) of this Programme, for the purpose of making a contribution to the capital of the Investment Fund, on the basis of an application of the Investment Fund/asset management company, the Corporation shall transfer funds:

a) from the funds secured for the Investment Fund, as provided for by paragraph 5 of this Article;

b) if the amount determined by subparagraph (a) of this paragraph is not sufficient to fully cover the required amount, the Corporation shall transfer the necessary additional amount from the funds allocated for the Programme from the state budget of the same year, and/or from other sources of financing referred to in this article.

 

Article 11 – Monitoring of the Programme

1. The Corporation shall monitor the fulfilment by the Investment Fund/asset management company of its obligations determined by the Programme in accordance with the procedure and within the time frame established by it. The Investment Fund/asset management company shall, in turn, assist the Corporation in conducting the monitoring referred to in this paragraph.

2. Within the framework of the Programme, the Corporation may require from the Investment Fund/asset management company to submit additional information/documents related to the investments made.

3. If, as a result of monitoring by the Corporation, a case/cases of non-compliance with the purpose and/or other obligations specified in the Programme is/are identified, the Corporation shall act in accordance with the rules set out in the agreement referred to in Article 8(4) of the Programme.

 

 

 Annex No 1

 

Section	Part	Name of economic activities
A	01	01.15.0  Growing of tobacco
C	12	12.00.0  Manufacture of tobacco products
C	25	25.40.0  Manufacture of weapons and ammunition
C	30	30.40.0  Manufacture of military combat vehicles
G	46	46.35.0  Wholesale trade in tobacco products
G	47	47.26.0  Retail trade in tobacco products in specialised stores
R	92	92.00.0  Gambling activities
S	94	94.91.0  Activities of religious organisations
S	94	94.92.0  Activities of political organisations