Chambers Practice Area Overview 2020 – Capital Markets (Portugal)
On the back of the stabilisation of economic growth during the last couple of years, Portuguese equity and debt capital markets experienced a stable transactional flow over the course of 2019.
The major fundamental indicators of the Portuguese economy have continued on their path towards stabilisation: the GDP is at its pre-crisis level, economic growth is above EU zone average, unemployment has continued to fall. A reduction of 10% since 2013 to below 7% has consolidated one of the largest reductions in the past decade. The economy has also enjoyed continuously strong export figures and historically low levels of budget deficit. In addition, the stabilisation of Portugal’s financial situation has continued to progress, with implementation of structural reforms and the benefit of a generally favourable global economic context.
The record large-scale disposal of NPLs by Portuguese banks continued to be one of the major highlights in the Portuguese financial market and contributed to the continuous decline of the stock of non-performing loans (however, it is still one of the highest in the Eurozone). These disposals have been made either through bilateral sales or through the use of securitisation vehicles - a major trend in the Portuguese market during 2019.
While Portuguese sovereign debt (by reference to the GDP) continued its downward path, the overall debt stock (which increased in face value vis-à-vis 2018) may prove to be a limitation on the ability of the Portuguese government to deal with any future crisis. By mid-2019, Portugal became the first Eurozone country to conclude a sovereign debt sale on China’s bond market, selling 2 billion renminbi (around EUR 260 million) in three-year notes with a yield of 4.09%, in an offer attracting high demand (three times the offering). Overall, in 2019 alone, the Portuguese Republic has placed over EUR 12 billion in treasury bonds and over EUR 13 billion in bonds, which reached a historic low cost for the Republic at only 1.2% yield.
In equity capital markets, the highlights were, on the one hand, the take-over bid on Media Capital, the largest Portuguese media group and owner of one of the two main privately owned TV channels in Portugal and, on the other hand, the failure of the EUR 23,000 million take-over bid by China Three Gorges of the Portuguese incumbent electricity producer and distributor EDP.
Debt capital markets gave a strong performance in 2019 – TAP, the largest Portuguese airline company, completed two successful bond issuances: (i) its first international offer, consisting of high-yield senior bonds addressed to institutional investors (destined both for the US and non-US markets, and both issued under the US Securities Act), which amounted to EUR 375 million; and (ii) a remarkably successful domestic bond issuance which reached a total amount of EUR 200 million.
In addition to the TAP transactions, two other giants in their sectors successfully reached out to the debt markets. First was SIC, the owner of the Portuguese SIC TV network, which issued EUR 51 million 3-year maturity, 4.50% yield notes. Second, Mota Engil, the Portuguese construction giant (and one of the largest groups of the sector within the EU), pulled around EUR 140 million from the markets further to two exchange and one bond issuance public offerings. All these transactions attracted high demand and evidenced the Portuguese debt market’s strong appetite.
With a steady flow of traditional asset-backed transactions, the ABS Portuguese market continued down the innovative path it began to follow in 2018 and concluded a second securitisation of TV rights receivables. This transaction was originated by Sporting Clube de Portugal, which securitised the receivables arising under the TV rights contract with TV operator NOS for the transmission of the club’s Primeira Liga home games. The value of the deal was EUR 75 million.
In the financial sector, the highlight was BCP’s successful EUR 450 million subordinated Tier 2 notes issued in September 2019 after having issued EUR 400 million in AT1 notes in January 2019.
Early 2019 brought yet another significant change in the legal panorama in the capital markets sector with the entry into force of the EU securitisation regulation. This not only laid down the general framework for securitisation in Member States, including Portugal, but also created a specific and more favourable framework for simple, transparent and standardised securitisations (STS). This represented a major change in the securitisation legislation as this Regulation not only replaced the main legal provisions applicable to securitisations in Portugal, but also regulated certain aspects that, until then, had been left to contractual governance (and thus, to the freedom of the parties involved).
Besides the developments described above, one of the major changes in the Portuguese legal environment was the introduction of loan funds in September 2019, a significant development in the Portuguese financial legal framework. With these new rules, loan funds will benefit from an exemption provided in the Portuguese Banking Act covering lending activities when carried out by authorised loan funds. It also broadens the scope of the regulated entities that can conduct lending activities, thus diversifying the access to financing beyond the banking sector. In particular, it opens up the possibility for non-banking entities to access the Portuguese corporate lending market through more versatile investment vehicles (while still being subject to the oversight of the Portuguese Securities Market Commission). In this respect, it is worth mentioning that the effectiveness of the loan funds rules is subject to the adoption of technical regulations by the Portuguese Securities Market Commission. It is expected that the first quarter of 2020 will bring some news in this respect and that these rules will take effect before the end of March.
By Gonçalo dos Reis Martins and Hugo Nunes e Sá