The European Commission on Friday approved the Croatian government's decision to grant the Djuro Djakovic mechanical engineering group a state guarantee for a HRK 300 million (€40.31m) loan.

The measure will allow the Slavonski Brod-based company to meet urgent liquidity needs and continue its activities, without unduly distorting competition in the single market, the Commission said.

Djuro Djakovic’s financial difficulties pre-date the COVID-19 outbreak and the support measure was approved under the Commission’s guidelines on rescue and restructuring.

Rescue and restructuring aid is among the most distortive types of state aid and can only be granted to companies once these have exhausted all other market options.

In the present case, the Commission found that the state guarantee is necessary to allow Djuro Djakovic to continue production, deliver on contracts already entered into and avoid layoffs in a structurally disadvantaged area.

The Commission says that the company’s liquidity needs over the six next months are based on reasonable assumptions, and that Croatia committed to provide a restructuring plan for Djuro Djakovic within six months following the first disbursement of the guaranteed funds. It therefore concluded that the measure is compatible with EU state aid rules.

Djuro Djakovic employs 794 people and has a diversified industrial portfolio including defence, transport, industry and energy. The core business of the company is the manufacturing of freight wagons for special purposes. The company is located in an area with high unemployment and low job creation.

Djuro Djakovic is facing difficulties due to internal and external factors, to a large part related to the cutbacks in national military spending in the last few years.