BRUSSELS — European Commission officials indicated Tuesday that Brussels will “undoubtedly” investi-gate any loan deal struck between Bavarian media mogul Leo Kirch and state-owned bank Landesantalt fr Auf-baufinanzierung (LfA) under EU competition rules relating to state subsidies.
“The commission’s competition services will, as a matter of course, send a letter to the authorities in Bonn, asking for more information” an official said.
Kirch Group confirmed Monday that it was negotiating a large loan (believed to be in the region of $500 million) with a consortium including LfA and a number of commercial banks. In order to avoid intervention from Brussels, Kirch will need to persuade the commission that the loan from LfA, which is owned by the state of Bavaria, does not constitute a state subsidy and has been granted on the basis of market rates and conditions. LfA’s share is ex-pected to greater than $125 million.
The loan has drawn fire from critics who say Kirch Group founder Leo Kirch is receiving preferential treatment from the Christian Social Union, the Bavarian arm of German Chancellor Helmut Kohl’s Christian Democratic Party.
While Kirch officials have denied the loans are intended to overcome cash-flow problems, analysts point to the sputtering launch of Kirch’s digital pay-TV station DF-1 and subsidiaries such as sports channel Deutsches Sport Fernsehen. Kirch’s problems stem from unexpectedly slow takeup for DF-1 from subscribers, combined with high startup costs and commitments made to Hollywood studios last year.