Executive Summary:
- A private market investor carries out an ex ante profitability analysis before it invests in a company.
- State investments made on pari passu terms with other private investors are free of state aid.
- Even if a public authority invests in a company as a means of pursuing a public policy objective, the terms of its investment may still conform with the MEIP.
- Even if the company invested in is not financially healthy, investment accompanied by restructuring may conform with the MEIP.
- What happens after the investment takes place must be ignored for the purpose of assessing whether a public investment conformed with the MEIP.
Table of Contents:
- Introduction
- One or two measures?
- Assessment of conformity with the MEIP/MEOT
- The prospective profitability of the two measures
- The impact on the Commission’s conclusion of the subsequent deterioration of Lineas’s condition
Introduction
In December 2021, a complainant submitted information to the Commission alleging that Belgium had granted incompatible state aid to Lineas Group, a rail freight operator based in Brussels. The Commission examined the complaint in case SA.101469.[1]
Lineas used to be 100% owned by SNCB/NMBS, the Belgian rail incumbent which is wholly owned by the state. However, after restructuring in the past 10 or so years, Lineas is now owned by ARGOS WITYU [54%], a private equity group, and FPIM/SFPI [46%], a Belgian investment company, whose sole shareholder is the Belgian state.
The complaint concerned a capital injection of EUR 10 million in 2023 by FPIM/SFPI [measure 1] and another capital injection of EUR 31.2 million in 2024 [measure 2] also by FPIM/SFPI.
The Belgian authorities argued that both capital injections satisfied the market economy investor principle [MEIP] [the Commission refers to it also as the market economy operator test]. They submitted a study by independent experts that found the cost of equity of Lineas in 2023 was 8-10% and that at that time the risk-free rate In Belgium was 3.06% and the equity risk premium was 5.37%. Other figures are deleted in the Commission decision for being business secrets. Nonetheless, from these three figures we can infer that, according to the capital asset pricing model [CAPM], the beta [β] factor for Lineas must have been 0.92-1.48, which suggests that Lineas is not much riskier than a broad portfolio of shares. In 2024, the cost of equity was still 8-10% and the risk free rate 2.81%, while the equity risk premium was 5.33%. These figures suggest that the beta factor in 2024 was 0.97-1.35. Hence, there was no significant increase in the specific risk of Lineas in comparison to the overall market.
The report of the independent expert also included calculation of future revenue streams which were subject to a sensitivity analysis with the use of different scenarios on the future evolution of the market for rail freight services. The Commission concluded that the two capital injections conformed with the MEIP or MEOT and therefore they were free of state aid.
However, before it could examine whether the two capital injections conformed with the MEIP/MEOT, the Commission had to decide whether the capital injections constituted one or two separate measures.
One or two measures?
The Commission, first, explained that “(75) in certain cases, several consecutive measures may, for the purposes of Article 107(1) TFEU, be regarded as a single intervention. That could be the case in particular where consecutive interventions, especially having regard to their chronology, their purpose and the situation of the alleged beneficiary at the time of those interventions, are so closely linked to each other that they are inseparable from one another. To that end, the Commission must base its decision on all the relevant matters of fact and law, such as the subject matter and nature, the identity of the grantors or beneficiaries thereof, and the question whether the various interventions at issue were envisaged at the time of the first intervention.”
“(76) First, the Commission notes that, despite the fact that they are granted by the same entities, and both take the form of capital injections, Measure 1 and Measure 2 are not concomitant. The former took place in May 2023, while the latter only occurred 8-9 months later, in January and February 2024”.
“(77) Second, in spite of the argument brought forward by the Complainant on the foreseeable necessity of Measure 2 at the time of Measure 1 …, it should be borne in mind that FPIM/SFPI initially anticipated to participate in one capital injection only, namely the 2023 capital injection, as is evidenced by an internal note of FPIM/SFPI addressed to its Board and dated 2 December 2022 … Indeed, in 2023, FPIM/SFPI were neither considering to provide further financing to Lineas Group, nor did they know whether ARGOS WITYU as the second shareholder of Lineas Group would be in a position to invest additional amounts”.
“(78) It is clear from those minutes that Lineas Group was indeed in need of funding exceeding the 2023 capital injection, but planned to finance the biggest part of this need with funds from third-party private investors, while ARGOS WITYU and FPIM/SFPI would only contribute EUR 10 million each … To raise the additionally needed funding, Lineas Group contacted multiple investors after the 2023 capital injection, as evidenced by the internal notes of FPIM/SFPI dated 11 September, 14 November and 5 December 2023, but also the press report submitted by the Complainant itself”.
“(79) Measure 2 was not guaranteed when Measure 1 was decided. Each capital injection was evaluated based on its own merits. That is illustrated by the analysis of FPIM/SFPI before deciding to make the respective injections, which was limited to the injection in question”.
“(80) It is only at the end of 2023 that FPIM/SFPI decided to proceed with the 2024 capital injection, in view of the preference of private investors to defer their participation until Lineas Group achieved break-even”.
“(81) Hence, Measure 2 was neither foreseen nor envisaged when FPIM/SFPI decided to proceed with Measure 1.”
“(82) Third, the two measures have different objectives. Measure 1 aimed at providing Lineas Group with the financing necessary to prevent its bankruptcy and to address its needs until it finds third party investors to take a stake in light of its new strategic plan”.
“(83) Following a year of improving results of Lineas Group … but equally Lineas Group’s failure to attract third party investors before it broke even, Measure 2 aimed at enabling the continued improved performance of Lineas Group up until it reaches break-even and thus becomes interesting for third party investors, who have expressed their interest as of that point”.
“(84) In conclusion, although Measure 1 and Measure 2 involve the same grantors and beneficiary and are of a similar nature, they were each decided at different times (i.e. in April 2023 and January 2024) and Measure 2 was not envisaged or foreseen at the time of the decision on Measure 1. Moreover, if Measure 1 aimed at providing Lineas Group the financing necessary to prevent its bankruptcy and to address its needs until it finds third party investors to take a stake as part of its new strategic plan, the objective of Measure 2 was to finance the new strategic plan of Lineas Group in an environment where it had already delivered improving results, even outperforming the July 2022 business plan, but where it became clear that third party investors would not provide funding to Lineas Group before it reached the break-even point”.
“(85) In light of the above, the Commission considers that Measure 1 and Measure 2 are not so closely linked to each other that they are inseparable from one another and that they should be regarded as one single intervention. They will therefore be assessed as two separate interventions”.
Assessment of conformity with the MEIP/MEOT
First, the Commission recalled case law according to which “(89) ‘[f]or the purpose of the MEO test, only the benefits and obligations linked to the role of the State as an economic operator – to the exclusion of those linked to its role as a public authority – are to be taken into account. Indeed, the MEO test is normally not applicable if the State acts as a public authority rather than as an economic operator’. Concerning this aspect, the Court specified that the private investor test cannot be applied if ‘there is no possibility of comparing the State conduct at issue in a particular case with that of a private operator because that conduct is inseparably linked with the existence of infrastructure that no private operator would ever have been able to create, or the State acted in its capacity as a public authority’”.
With respect to measure 1 [the 2023 capital injection of EUR 10 million] FPIM/SFPI acted in its capacity as a shareholder, not as an organ of the state, to prevent the bankruptcy of Lineas and attract other private investors.
With respect to measure 2 [the 2024 capital injection of EUR 31.2 million], FPIM/SFPI acted in its capacity as a shareholder to increase the profitability of Lineas. For measure 2, the Commission added the following interesting clarification. “(97) The fact that Measure 2 may be in line with Belgian policy on freight transport …, as argued by the Complainant …, and that it therefore may have had public policy implications does not in itself justify the non-applicability of the private investor test. Indeed, the pursuit of public policy objectives does by no means rule out the applicability of the private investor test because the pursuit of such objectives ‘is in fact inherent in most of the State measures which may be classified as ‘State aid’ and examined, to that end, in the light of [the private investor test]. The consequence of applying that [test], however, is that those measures must be examined while leaving aside such objectives and the benefits linked to the State’s situation as a public authority which the implementation of those objectives is liable to generate’. In the case at hand, FPIM/SFPI has indeed left any such potential objective aside when assessing the profitability internally. It was also left aside for the purposes of the economic study.”
Next, the Commission made another important clarification with respect to the approach that it would follow by recalling again the relevant case law. “(100) The Commission emphasises that, ‘[w]hen applying the [private investor] test, it is useful to distinguish between situations in which the transaction’s compliance with market conditions can be directly established through transaction-specific market data and situations in which, due to the absence of such data, the transaction’s compliance with market conditions has to be assessed on the basis of other available methods’. A transaction’s compliance with market conditions can be directly established through transaction-specific market information, notably where the transaction is carried out pari passu by public entities and private operators. However, to consider a transaction pari passu, the Commission must notably assess ‘whether the starting position of the public bodies and the private operators involved is comparable with regard to the transaction, taking into account, for instance, their prior economic exposure visà-vis the undertakings concerned’”.
For both measure 1 and 2, the capital contributions by FPIM/SFPI and ARGOS WITYU were not in proportion to their respective shareholdings at the time of each capital injection. Therefore, they were not pari passu.
The prospective profitability of the two measures
With respect to measure 1, the Commission noted that “(107) FPIM/SFPI analysed the profitability of Measure 1 before carrying out the investment.”
“(110) According to paragraph 106 of the Commission Notice on the notion of State aid, ‘[t]he fact that the public body concerned has prior economic exposure to an undertaking should be taken into consideration when examining whether a transaction is in line with market conditions, provided that a comparable private operator could have such prior exposure (for example in its capacity of shareholder of an undertaking). In the event that bankruptcy provides higher gains or lower losses, a prudent market economy operator would choose that option.’”
“(111) The ex ante analysis and the economic study [of the independent experts] consider the prior economic exposure of FPIM/SFPI to Lineas Group as 10% shareholder by assessing Lineas Group’s residual value for the shareholders, if it had filed for bankruptcy. … The Commission concludes that, if it had filed for bankruptcy, Lineas Group’s residual value for the shareholders would indeed amount to zero”.
“(112) As a result of the above, in similar circumstances, a private investor would have made a decision whether to proceed with either Lineas Group’s bankruptcy or Measure 1. For the purpose of such a decision, a private investor would have chosen the option which provided for a higher expected return, even in the long term. Here, this would notably be the case if the company, in which the investment was made, demonstrated credible positive prospects and that the actual equity valuation of the invested company, taking into account future costs and revenues, was positive”.
On the basis of the calculations submitted by Belgium, the Commission concluded that the capital injection of measure 1 would increase the equity value of Lineas by far more than the amount of injected capital. It conformed with the MEIP/MEOT.
With respect to measure 2, the Commission, first, observed, that “(124) the mere fact that Lineas Group experienced liquidity issues at the time … does not suffice to exclude or fail private investor test. Should a prudent and diligent investor foresee the company’s impending growth and a subsequent increase in its valuation, this investor would seize the opportunity to invest in the company with the view to a sufficient return in the future compared to its initial investment.”
Again the Commission noted that “(126) FPIM/SFPI analysed the profitability of Measure 2 before carrying out the investment.” And again, allowing the company to go bankrupt would result in a residual value to the shareholders amounting to zero. Given the prior exposure of FPIM/SFPI to Lineas, for measure 2 FPIM/SFPI also had to choose the option that was likely to produce the better outcome: bankruptcy [that would result in zero value for the shareholders] v capital injection [if it would increase the value of the company]. In this case too the expected future equity value of the company would be much higher than at the time of the capital injection.
The overall conclusion of the Commission was that both measures were free of state aid. However, there is a twist to the Commission’s assessment because after the two capital injections the condition of Lineas worsened rather than improve, as expected.
The impact on the Commission’s conclusion of the subsequent deterioration of Lineas’s condition
The profitability of an investment is always forward looking. Past success or failure is irrelevant. What matters is whether sufficient profit is likely to materialise that can compensate for the risk assumed by the investor. This means that, in its assessment, the Commission always disregards events that occur after the investment decision is made. In the case of Lineas, however, things go worse soon after the injection of capital.
For this reason, the Commission considered it necessary to explain why the deterioration of the condition of Lineas did not affect its conclusion.
“(145) Following an unexpected deterioration of Lineas Group’s circumstances after the 2024 capital injection, a rescue loan was granted by the Belgian authorities to Lineas Group. This deterioration and the rescue loan were unforeseen at the points in time when the 2023 and 2024 capital injections were granted. Indeed, the anticipation of Lineas Group’s shareholders (both the public and the private one) when injecting capital either in 2023 or in 2024 was that Lineas Group was on a trajectory of growth in line with its new strategic plan, and that it would ultimately attract additional private funding and hence eliminate the need for any further support from Lineas Group’s shareholders. Rather than anticipating a future State-led rescue, both shareholders were thus confident that Lineas was on a path towards regaining profitability. The rescue loan was only granted after an unforeseen deterioration of Lineas’ performance, over 1.5 year after the 2024 capital injection and with no link to that injection. Thus, the Commission considers the rescue loan to be a separate intervention from Measures 1 and 2. It is the subject of a separate Commission decision”.
The decision concerning the rescue loan was adopted on 22 December 2025 in case SA.120185 and was published 2on 4 February 2026. It approved the rescue aid to the Lineas Group.
[1] The full text of the Commission decision can be accessed at:
https://ec.europa.eu/competition/state_aid/cases1/202630/SA_101469_336.pdf
