Coronavirus  

Govt bans dividend payouts for firms using loan scheme

Govt bans dividend payouts for firms using loan scheme

Large businesses borrowing cash from the government to support themselves through the coronavirus crisis have been blocked from paying out dividends to shareholders.

In an update to the Coronavirus Large Business Interruption Loan Scheme, published today (May 19), the Treasury announced companies borrowing more than £50m through the scheme would be subject to restrictions, including a ban on dividend payments except where they were previously agreed.

Borrowers also cannot pay any cash bonuses or award any pay rises to senior management, including the board, and face limits on share buy-backs during the period of the loan.

The ban is a further blow to income investors, who are facing at least a £30bn dividend short-fall this year as companies including banks and insurers scrapped payouts to shareholders amid the crisis.

The rule change comes as the government has increased the maximum loan size available under the scheme from £50m to £200m to ensure large firms have enough finance to meet their cashflow needs during the pandemic.

The expanded loans, which have been introduced following discussions with lenders and business groups, will be available from May 26.

John Glen, the economic secretary to the Treasury, said: "We’re determined to support businesses of all sizes throughout this crisis and our loans and guarantees have already provided over £32bn to thousands of firms.

"Today we’re increasing the maximum loan to £200m to make sure companies get the help they need."

Last week it was reported HM Treasury was mulling the expansion of its loan scheme to help a “squeezed middle” of larger British firms.

Businesses have been lobbying the government for the cap to be lifted, arguing the £50m limit was too low to fill a several hundred million pound hole left by the crisis.

Last month Britain’s biggest steelmaker, Tata Steel, said the government’s loan schemes were likely to fall short of what it required to make it through the disruption caused by the crisis and the associated lockdown measures.

An increased limit would also help companies such as airports and the leisure industry, which are likely to require much larger loans than £50m.

This is not the first time the chancellor of the exchequer, Rishi Sunak, has tweaked his coronavirus crisis policies in order to help businesses falling through the cracks.

Last month, he launched a 100 per cent government-backed loan scheme to help the smallest of businesses with loans of between £2,000 and £50,000 after concerns were raised such firms were unable to access the Coronavirus Interruption Business Loan Scheme.

imogen.tew@ft.com

What do you think about the issues raised by this story? Email us on fa.letters@ft.com to let us know.