As a result of the global economic crisis and the instability related with the public deficit and sovereign debt in Portugal, which culminated with the request for financial assistance in April 2011, the Portuguese Equity Capital Markets (“ECM”) during 2011 and 2012 saw limited activity, as international investors showed significant levels of aversion towards Portuguese equities.During this period, only a few number of transactions were concluded successfully, being mainly related with rights offerings of Portuguese financial institutions that had to comply with the capital requirements imposed by the Bank of Portugal and the European Banking Authority.
Simultaneously, the index PSI20 in 2011 presented high volatility levels and a significant negative performance, with an annual decrease of 27.0%, maintaining this markedly negative trend until the summer of 2012. Only from this point onwards there was an inversion in this trend, as the ECB announced several actions to support the economies of the Euro Zone.
Since then and up until June 2014 the PSI20 was able to maintain a positive performance, except for brief periods, reaching an annual growth of 16.0% in 2013 and,from the beginning of 2014 to the end of May, of 8.4%. For this positive behaviour there were two additional instrumental factors, namely the strong signs of macroeconomic recovery in Portugal, with GDP projections evolving towards a more solid growth, and the greater stability at a political level, since Portugal was able to fulfil the targets set by Troika and exit the Assistance Programme successfully in May 2014.
The Portuguese ECM market also benefited from these positive factors and moreover by the gradual change in investors’ perception towards domestic assets that began in 2013, which allowed it to reopen to new market offers with the IPO of CTT in December of 2013, the first IPO in Portugal since 2008. This Offer was considered a great success as it was able to generate high interest among international institutional investors, causing the total demand to exceed significantly the Offer’s shares and the final price to be set at the maximum point of the range.
CaixaBI was Joint Global Coordinator and Bookrunner in this transaction and, by exploiting its significant experience and leading role in ECM, it was able to take a crucial part in the reopening of the Portuguese ECM market and on the attraction of international investors’ interest towards Portuguese domestic assets.
CTT’s IPO was a significant landmark in the Portuguese ECM market as, once again, a Portuguese company was able to attract the generalised interest of international investors through a primary transaction, paving the way for further equity offerings in Portugal.
Furthermore, by capitalising on the significant improvement in market conditions in Portugal, several companies sought to finance themselves or to monetise non-strategic stakes through ECM transactions. As so, in 2013 and first half of 2014 there was an upsurge in the number of Accelerated Bookbuildings (“ABBs”) with Portuguese equities, including companies such as EDP, Portugal Telecom, Galp Energia and Mota-Engil, among others. CaixaBI acted as Advisor and Joint Bookrunner in several of these ABBs and has proven itself a privileged partner of companies and their shareholders by helping them finance their activity and strategic plans and giving them access to international institutional investors.
These transactions benefited from the growing interest of international investors and from favourable market windows, with share prices reaching maximum values of several months/years. This positive context allowed the offers to be concluded with great success, achieving levels of demand that have exceeded the number of shares offered in each transaction and discount values below the average of similar transactions in Iberia and Europe since the beginning of 2013.
The Portuguese Government also took advantage of the improvement in the Portuguese market conditions to fulfil the privatisation plan of the Assistance Program. During this period, in addition to the privatisation of 70% of CTT’s share capital in December 2013, it was also able to conclude the privatisation process of companies such as EDP and REN through ECM transactions, an ABB and a Fully Marketed Offer in February 2013 and June 2014, respectively, both of which attracting a significant interest from institutional investors. CaixaBI was once again an essential partner of the Portuguese Government in the execution of this privatisation plan, acting as Joint Global Coordinator and Bookrunner in these transactions.
From June 2014 onwards there was a substantial inversion in this positive trend,as a result of the instability in the Portuguese financial sector, namely caused by the financial problems detected in the main shareholder of one of the largest Portuguese private banks – Banco Espírito Santo (“BES”) – which culminated with the Bank of Portugal applying a resolution measure to BES, being its general activity and assets transferred to a new bank (“Novo Banco”).
Moreover, the sharp decline in oil prices that began in August 2014 and the most recent political problems in Greece that surfaced in December 2014 and led to the appointment of new legislative elections, had a strong negative impact in the Portuguese equity market, with the PSI20 index presenting a negative performance of 29.4% in the second half of 2014 and of 26.8% in the whole year.
As a consequence, the Portuguese ECM activity suffered a sharp decline. However, even during this negative context the Portuguese Government was able to take advantage of a window of opportunity in early September 2014 and concluded CTT’s privatisation, selling its remaining stake of 31.5% in the Company’s share capital through an ABB. The Offer achieved a high success, reaching a significant level of demand that exceeded the total existing shares for sale, with the demand coming mostly from international investors. CaixaBI was Joint Global Coordinator and Joint Bookrunner in this transaction, being instrumental for its success.
For 2015 the Portuguese ECM activity is highly dependent on the improvement of the overall market conditions, namely of a positive performance of the Portuguese and international equity indexes and of a decrease in the volatility levels. If this is the case and considering that the Portuguese macroeconomic conditions have improved during the last year, there might be a positive context and opportunity windows for the companies to finance themselves through IPOs, follow-ons or other types of ECM transactions.