Chambers Practice Area Overview 2019 – Capital Markets
On the back of the stabilisation of economic growth during the course of 2018, Portuguese equity and debt capital markets have experienced a steady flow of traditional deals, but also some innovative ones. The major fundamentals of the stabilisation of the Portuguese economy during 2018 were the economic growth coming out as expected or marginally lower, unemployment continuing to fall, exports increasing less than in 2017, the historically low levels of budget deficit and an (albeit slow) decrease in public debt levels. In addition, the stabilisation of Portugal’s financial situation continued to progress and is reaching its conclusion after the recapitalisation of Portugal’s largest banks and the record large-scale disposals of NPLs by Portuguese banks. The country’s financial situation has been helped by a number of factors, including increased scrutiny by the ECB and the hype in the Portuguese real estate markets which narrowed the gap between bank valuations of property collaterals and market price. The stock of NPLs has consistently declined, more than 35 per cent from June 2016 to June 2018, but the ratio of NPL to total loan exposures is still one of the highest in the Eurozone.
The disposal of NPLs by Portuguese banks was indeed one of the major highlights in the Portuguese financial market. These disposals have been made either through bilateral sales or through the use of securitisation vehicles. This was a major trend in the Portuguese market during 2018 and it is expected to continue in 2019.
Portuguese sovereign debt continues to decline, but the overall debt stock will limit the ability of the Portuguese government to deal with any future crisis. An issuance of a EUR380 million equivalent in yuan denominated sovereign bonds was prepared throughout 2018 and is expected to take place in 2019. This will make Portugal the first European country to issue the so-called panda bonds. In addition, to benchmark issuances placed in the international markets, the Portuguese Republic tapped the domestic retail market again in an effort to continuously diversify its sources of funding.
In equity capital markets, the highlight was the EUR23 billion take-over bid by China Three Gorges of the Portuguese incumbent electricity producer and distributor EDP, a deal which is still a long way from being concluded given the several regulatory hurdles and required approvals in a number of different jurisdictions. Otherwise, equity capital markets remained relatively stable throughout the year. Contrary to expectations however, the year went by without a significant number of new issuers. The IPOs of Science4You, a toy manufacturer, and of Modelo Continente, the retail arm of the Sonae Group, were ultimately unsuccessful, inevitably impacted by the year-end downturn in the international markets. The debut issuance by Raize, a crowdfunding platform, was the notable exception, hopefully paving the way for other local start-ups seeking to access the market.
Debt capital markets also performed strongly during 2018, with investors showing an increasing appetite for Portuguese debt in the aftermath of the upgrades of sovereign debt by the major rating agencies. This dictated the success of several types of debt issuances in the market.
In the financial sector, the highlight was CGD’s successful EUR500 million subordinated Tier 2 notes issued in July 2018 after having obtained approval by the European Commission for this issuance instead of further additional tier 1 (AT1) notes. That came at the much lower rate of 5.75% compared to the AT1 notes issued in 2017. BCP however, issued a further EUR400 million in AT1 notes in January 2019.
The ABS market remained stable so far as the traditional asset classes are concerned, but was active in innovative transactions. Of note was the securitisation of TV Rights receivables, the first of this kind at European level. This transaction was originated by FC Porto, which securitised the receivables arising under the TV Rights contract with TV operator Altice for the transmission of the club’s Primeira Liga home games. The deal size reached EUR100 million. It was fully placed in the international institutional investor market and involved the development of new legal technology. Another stand-out deal was the EUR126 million Guincho Finance public rated securitisation transaction backed by a portfolio of NPLs originated by Banco Santander. This was the second transaction of this kind in Portugal. A number of private NPL securitisation transactions took place in 2018 and it is expected that the activity levels of this asset class will continue to be high during 2019.
Portugal’s largest banks continued to access the market through the issuance of covered bonds backed by mortgage loan portfolios.
MiFID II entered into force in 2018 with market participants having adapted relatively well on the back of their efforts made in the preparation of the required changes to their businesses and operations. After having dealt with MiFID II, international financial institutions with business in Portugal focused on Brexit preparation work. The huge level of uncertainty around Brexit will continue to influence Portuguese capital markets throughout 2019.
Besides the developments described above, the major novelty in the Portuguese legal environment was the approval of the long-awaited legal framework for Portuguese REITs in early 2019. This created a new type of real estate investment vehicle, the Sociedades de Investimento e Gestão Imobiliária (“SIGIs”) similar to English REITs and Spanish SOCIMIs. With this new framework, the Portuguese government intends to boost the Portuguese rental market, as well as foreign direct investment and capital markets, by virtue of the mandatory listing and minimum free-float rules.