PORTUGAL: An introduction to Capital Markets
Current Economic Conditions Affecting Clients and the Legal Profession
Geopolitical risks and uncertainty, fragmentation, volatility and disruption, concerns about energy and climate transition, digitalisation, and sustainability are key drivers of the current economic landscape. In this complex environment, issuers now have access to lenders that did not exist a few years ago, such as those in the shadow banking sector. Investors, too, have a broader range of investment tools and opportunities, including exchange-traded funds (ETFs) and crypto-assets.
Funding remains the essential fuel for companies to grow and create value for their shareholders. Capital markets have increasingly served as an alternative to traditional banking; however, they now face more challenges than ever. That said, recent political changes across the Atlantic are expected to ease some of the legal and regulatory barriers to market development, which should have a positive impact on investment activity.
Level of Activity, Trends, and Developments in the Area
As in previous years, 2024 presented a significant contrast between debt and equity capital markets in Portugal. This year has been the most active ever for corporate issuers’ retail offerings in the debt capital markets. In total, corporate issuers raised EUR509 million (with demand globally reaching an average of c.1.14 times the offer), completing a record-breaking nine transactions.
On the equity side, no IPOs have taken place, although at least one – Luz Saúde – came very close to materialising. Meanwhile, one major listed company, Greenvolt, was delisted following a takeover by KKR, and at least one other company, Cofina, announced its delisting. Regulated markets continue to serve as a viable option for shareholder distributions via equity mechanisms, some of which are entirely new to the Portuguese market. Galp launched a EUR350 million share buyback programme for cancellation purposes, while CTT repurchased approximately EUR12 million worth of shares under its buyback programme. Additionally, Novabase introduced an innovative dividend distribution scheme, offering shareholders the option to receive cash or shares, supported by a EUR40 million capital increase.
In the debt capital markets, we have witnessed the arrival of new issuers such as Vista Alegre and CUF, as well as the return of recurring issuers like Greenvolt, Mota-Engil, and SIC. Furthermore, listed sports companies – Benfica, Porto, and Sporting SAD – followed the path, adding to volumes within this sector. Except for the latter companies, there has been a clear push from both issuers and arranging banks to incorporate sustainability features into debt instruments. Greenvolt issued its second retail green bond, Mota-Engil launched another sustainability-linked bond with a new KPI, while CUF, SIC, and Vista Alegre debuted as sustainability-linked bond issuers.
New Legislation That Will Impact Clients
The Listing Act, approved in late 2024, aims to simplify and reduce the cost of market access. The regulation (EU 2024/2809) expressly acknowledges the “obstacles stemming from the length, complexity and high costs of the prospectus documentation, both where companies, including SMEs, seek access to public markets for the first time through an IPO, and where companies access public markets for secondary issuances of equity or non-equity securities” (Recital 6). To address these issues, the Act introduces several welcome measures, including a potential increase in the prospectus-exemption threshold from EUR8 million to EUR12 million, and an exemption from prospectus requirements for public offerings of up to 30% of already listed securities, provided a prospectus has already been approved for similar securities. The new EU Follow-on Prospectus is also expected to enhance flexibility and simplicity for issuers.
A particularly important change is the introduction of a maximum timeframe for prospectus verification and approval, providing greater legal certainty and potentially reducing delays in the process.
The Directive on Multiple-Vote Share Structures (Directive (EU) 2024/2810) also addresses a significant hurdle to IPOs: founders’ and entrepreneurs’ concerns about loss of control.
Additionally, the 2024 amendments to the Market Abuse Regulation bring more clarity to disclosure requirements. Listed companies are now only required to disclose inside information pertaining to the final event or final circumstances of protracted processes, such as the final decision to enter into M&A transactions. This simplifies the regulatory burden associated with corporate resolutions to delay disclosure of information regarding negotiations, binding proposals, and non-binding proposals. Moreover, insider lists for SMEs were also subject to a simplified format.
The amendments to MiFID II, through Directive (EU) 2024/2811, aimed at making public capital markets more attractive and accessible to SMEs, are another positive development. For instance, the minimum free float requirement for listings has been reduced from 25% to 10%, making market entry easier for smaller companies.
Potential Hurdles or Difficulties Faced by Clients and How They Can Be Overcome
In the equity capital markets, it is often said that Portuguese entrepreneurs are not keen on the stock exchange. Savings are much more commonly placed in bank deposits rather than securities investments. Key reasons for this include concerns about losing control, scepticism over the benefits of being publicly listed, a preference for discretion, fears of activist shareholders creating volatility, low financial literacy, and a lack of tax incentives.
However, the case of Greenvolt challenges these perceptions. Greenvolt’s July 2021 IPO at EUR4.25 per share was a success, followed by a EUR100 million rights issue in mid-2022. The company also explored convertible bonds in early 2023 and successfully tapped both qualified investor and retail debt markets. In December 2023, a takeover bid at EUR8.31 per share led to Greenvolt’s delisting – a success story of value creation for the company, its shareholders and stakeholders in general. This example demonstrates that capital markets can indeed function as a powerful growth engine.
In 2022, the Portuguese Securities Code was amended to promote capital markets. Multiple-vote shares were introduced into Portuguese law, arranging and placing services in public offerings became optional, and squeeze-out rules were relaxed. Existing gold-plating provisions were largely eliminated or adjusted. Portugal now boasts a more market-driven framework. Furthermore, we can say that the Portuguese Securities Market Commission – CMVM (the Portuguese regulator), while effectively performing all its regulatory functions, adopts a friendly approach to transactions and the market.
Given the scenario described above, it is fair to say that the main hurdles and difficulties in the Portuguese equity capital markets are not driven by regulatory constraints or the legal environment. The factors that have hindered the success of Portuguese equity capital markets can be addressed or mitigated. The Listing Act (Regulation (EU) 2024/2809), along with Directive (EU) 2024/2810 on multiple-vote share structures for companies seeking admission to multilateral trading facilities and the amendments to MiFID II aimed at making public capital markets more attractive and accessible to SMEs (Directive (EU) 2024/2811), will undoubtedly be beneficial.
In addition, initiatives like Market4Growth (CMVM’s capital markets sandbox) and the Elite Programme (Euronext’s project to foster the use of capital markets, particularly by SMEs) are valuable in providing greater transparency and information to potential market participants. Success stories are also essential in changing market perceptions. After prolonged speculation, it appears that the IPO of NovoBanco, currently controlled by Lone Star, will finally take place this year.
Finally, tax policy remains a crucial factor. Last year, the Portuguese government introduced minor tax reforms aimed at promoting capital markets. While these changes were a step in the right direction, they were widely regarded as insufficient to meaningfully address the lack of appetite for equity capital markets in Portugal. A well-designed tax framework is essential to ensure that both issuers and investors see capital markets not only as a viable alternative but also as a more attractive option compared to traditional funding and savings vehicles. Without such reforms, the underlying reluctance to engage with equity capital markets is likely to persist, even if other barriers are mitigated.
As for the debt capital markets, the primary challenges and hurdles relate to uncertainty and the pricing of alternative funding sources, particularly in the banking sector. Declining interest rates, which are expected to continue, could encourage more debt market activity. However, lower funding costs in the banking sector will intensify competition.
Looking ahead to 2025, we remain optimistic despite ongoing volatility and uncertainty in Europe. The macroeconomic outlook for Portugal is favourable, with GDP growth projected at around 2% and a budget surplus expected. These conditions may strengthen the fundamentals of Portuguese companies, enhance the attractiveness of Portuguese assets, and stimulate greater interest in capital markets and public M&A activity.