The challenge of energising Portugal’s capital markets
The challenge of energising Portugal’s capital markets, attracting capital, and encouraging more companies to list on the stock market topped the agenda at Portugal’s 1st Capital Markets Day held last week.
Text and Photos: Chris Graeme
Portugal Capital Markets Day 2024 did not come completely out of the blue. It has a legacy from the period 2007-2012 when Portuguese companies and equity funds regularly had contacts with the global investment community at an event called Portuguese Day at the New York Stock Exchange (NYSE).
Although abandoned during the Great Financial Crisis, it was an important milestone moment that raised awareness among capital markets and investors to growth and investment opportunities in Portugal.
This was the forerunner of the 1st Capital Markets Day in Portugal which gathered together investors from several markets including the US, France, Spain, Belgium, Netherlands, Portugal and India, many of which attended in person or remotely, and gave Portugal’s capital market the chance to present all of its listed companies on the Portuguese stock market as a whole, rather than individually.
A remarkable attendance
The two-day event was divided into two parts – one on June 24 between investors and Portuguese companies, and the conference ‘Invest in Portugal – Insights on an Economy in Transformation’ on June 25 when the Lisbon Católica University report ‘Structural Trends Shaping the Portuguese Economy and Growth’ was presented by the report coordinator, economist Professor Ricardo Reis.
Day 1 featured 20 Portuguese issuers (Companies listed on Euronext Lisbon) whose CEOs and directors held around 100 face-to-face meetings with the representatives of around 50 institutional investors from the seven countries including Portugal, and the level of satisfaction from both sides was, in the words of Miguel Athayde Marques, Chairman of the AEM (Portuguese Issuers Association) “remarkable”.
The first day also involved the participation of the Minister of the Economy, Pedro Reis, and the Chairman of the Portuguese Securities Market Commission (CMVM), Luís Laginha da Sousa.
In his opening speech, Miguel Athayde Marques said: “It is time to care about Portuguese capital in the Portuguese economy. Our growth has been anaemic for too long. The challenge for us is to make our economy grow at a significant pace, to keep converging with the most dynamic regions of the European Union.
“We have concentrated for all these years on another factor that influences the economy, the labour market, but that is not enough, and somehow capital has been overlooked. We cannot achieve growth, which is the major challenge of our economy, without our economy and our companies growing,” said the AEM President.
And added: “For our companies to grow, capital is absolutely essential and that is the ultimate reason we have started Capital Markets Day, to see if we can energise this movement which has the support of the current Portuguese government.”
Connecting Portugal’s companies to global capital markets
The CEO of Euronext Lisbon, Isabel Ucha, explained that Euronext had decided to organise the event on the 10th anniversary of its IPO (Initial Public Offer). In 2024 European investors took over Euronext from its previous US owners.
Since then, she pointed out that Euronext had been building the principal market infrastructure in Europe to the benefit of Europe’s economies, listed companies, and investors.
With Euronext’s integration in eight markets and present in 18 countries, Euronext was “now delivering a fully integrated value chain, including listing, trading, clearing, settlement, and custody solutions”.
This integrated chain covered a variety of asset classes, not just stocks and bonds, but also derivatives, foreign exchange, commodities and energy products.
However, Isabel Ucha said it remained committed to its main roots; connecting local economies to the global capital markets.
“Portugal Capital Markets Day is exactly about this – connecting our Portuguese companies and economy to global capital markets and local and global investors,” she said.
The Euronext CEO said that looking forward, the Portuguese market would continue to grow as a central location for developing Euronext in Europe.
Euronext Portugal has 330 employees – both in Lisbon and Porto – spread through different kinds of services like exchange services, but also services to the rest of Europe like Central Securities Depository (CSD), IT services, and an Inter-Finance Service Centre.
Euronext Lisbon, Ucha informed, would also be moving to a new premises in 2025, with a target of 420 employees, becoming the second most important location for Euronext after Italy.
In November, Euronext will announce its strategic three-year plan and “our ambition is to deliver the next generation of European integration to 2027 and shape capital markets for future generations”.
A structural reform programme
The Minister of Finances and State, Professor Joaquim Miranda Sarmento explained current government policy on “How Economic Policy will support Foreign Investment?”
The minister said that the prospects for the Portuguese economy for the next few years were “relatively positive” expecting in a “no-policy change scenario” economic growth above 2%, and that the government (if I survives) has a strong structural reform programme for the next years.
“That programme will address the weaknesses of Portugal’s low productivity and competitiveness, with several key objectives: Increase our potential GDP from 2% to 3% in the medium term, getting the economy to grow more than it has over the past two decades.
“That will allow us to increase investment (both private and public), to create more jobs and better salaries, and to keep our public finances balanced,” he said.
“Portugal sill has low levels of productivity and competitiveness and over the past 25 years economic growth on average was 0.7%.
“And with the good prospects for the next few years we should not forget the weaknesses in the Portuguese economy and why we need structural reforms to overcome those weaknesses,” he went on.
These reforms meant reducing bureaucracy and red tape on firms, increasing competition in several sectors of the economy, and allowing regulatory bodies to have more independence.
It also meant reforming Portugal’s tax system which is “complex and unstable” with high levels of compliance costs, lengthy litigation in courts, and high levels of income tax and corporate tax,” said the minister.
Simplifying the tax system and providing incentives
The government intends, he said, to simplify the tax system, provide more resources to firms by lowering corporate tax from 21% to 15%, giving more resources to families by lowering income tax (between 0.25% and 1.5%), and improving the tax justice system so that when firms litigate against the tax authorities the cases won’t take so long to settle as they do now.
Joaquim Miranda Sarmento said the government planned to make reforms to the labour market. “The labour market in Portugal is very rigid for those who are already in the market, with high levels of insecurity for those entering the market.”
The current government also aims to change its economic justice procedures, making bankruptcy processes faster and simpler, making it easier and less time consuming for companies to settle debt lawsuits in the courts, while reducing the costs for firms when they have to litigate with others.
The Minister of Finances added that the government aimed to address three problems that Portuguese companies faced; low levels of capital since Portuguese firms were highly in debt, so as to increase the capitalisation of firms.
The government also aimed to address the problem of scale; Portuguese firms tend to be small, which reduces the value of scale and the opportunity for increasing growth by using scale up opportunities.
Encouraging FDI and internationalisation
The government also wanted to increase the internationalisation of Portuguese firms by providing incentives for Portuguese firms to export and invest more.
“We expect to attract more Foreign Direct Investment, particularly in new areas of technology, renewable energy, climate transition, digitalisation, and through other types of services,” said Joaquim Miranda Sarmento, adding the importance of keeping public finances balanced with surpluses on the fiscal account for the coming years, which would allow Portugal to continue to reduce its public debt (currently below 100% of GDP), and keeping public finances sustainable, were all priorities.
“We forecast that in 2028 when this government leaves office it will be around 80% of GDP,” he said.
The minister explained that the government would create more favourable tax conditions for investors to invest in debt (both government savings and treasury bonds), Portuguese bonds and stocks, create more tax benefit for innovative startup firms, implement tax benefits for R&D promoting innovation, tax incentives for Portuguese firms that are export-oriented and focused on internationalisation to external markets.
Portugal’s capital market milestones
Giving a brief overview of Portugal’s capital market milestones over the past 10 years, Abel Sequeira Ferreira, Executive Director of the AEM delivered a speech on ‘Unlocking Potential: the Transformation of Portugal’s Capital Market’.
He said that a decade ago it was clear that change was necessary to create a more robust Portuguese market, capable of meeting the financing needs of companies.
The number of listed companies and market capitalisation of companies had been declining since the beginning of the century.
The securities market regulator CMVM, Euronext Lisbon, the funds association and the issuers association – all relevant actors in the market – recognised the problem and all started working to address this challenge.
AEM launched the discussion with its 2013 report with recommendations for strengthening the Portuguese market by focusing on four main areas: market structures, law and regulation, savings and investment mechanisms, and capital market taxation.
The report, he said, served as the blueprint for the discussions, and in 2016 after a year of close collaboration with key stakeholders, the then government published its capitalised programme emphasising company capitalisation and introducing new measures such as tax incentives to reinforce equity capital, expansion of the tax reduction regime for retainment and reinvestment profits, introducing small and mid-cap concepts and regimes for securities investment companies to promote the economy, and the launch of a company training programme for the capital market.
Initiatives creating a better market
The initiatives marked significant progress, bringing together crucial elements for a better market.
This was followed by best practices improvements, and in 2018 the IPCG – the Portuguese Institute for Corporate Governance – published a new private Corporate Governance Code following agreements with the CMVM, the IPCG, and AEM that established a new system of good governance, including timely objective and independent monitoring and reviews.
The code has been revised twice since its implementation, incorporating topics like sustainability and artificial intelligence, ensuring its relevance for the future, with a compliance rate of 95% last year for all 36 issuer companies monitored.
In 2020 there was a breakthrough. Following the initiative by CMVM, the OECD presented its capital market review for Portugal.
The review identified three factors for creating a successful stock exchange listing environment built around 5 ideas. Promoting access to equity capital to the stock market, creating an enabling environment for corporate growth, facilitating market-based long-term debt financing, increasing the participation of traditional institutional investors, and increasing the availability of alternative financing.
The review was then followed by a report from the Internal Capital Market Taskforce Revitalisation which expanded on the OECD recommendations and formed the basis of subsequent initiatives, including the much needed review of the Securities Code.
The rules became simpler, more stable, and transparent. “We fine-tuned the transposition of European directives, like the shareholder directives and transparency directive, eliminating most of the ‘gold plating’ in the code”, he said.
And added: “We amended offer regimes for takeovers and introduced innovative mechanisms such as the new multiple voting rule based on a proposal from the AEM, promoting financing through public issuers of capital by companies, especially family offices, without the need to change control structures”.
Initiatives included a more market-orientated CMVM with a market-based financed roadmap, electronic one-stop-shop portals, a market-for-growth sandbox for simulating company experiences in the market, an annual circular with notes for issuers and asset managers and regular risk outlooks, all showing the regulator’s commitment to market development.
“There were four Euronext initiatives: the new PSI Index replaced the PSI-20; a bold and risky but necessary move to enhance our main index credibility”.
It launched its Elite programme in Portugal, already benefiting many companies by connecting them with capital, the Tech Leaders program composed of 110+ high-growth and leading companies, each meeting a specific set of criteria to qualify, and the Elite and World Trade Centre Lisbon – an international academy to help Portuguese companies grow.
A major breakthrough on tax
To start completing its agenda for Portugal’s commitment, the various institutions needed the tax measures it had been pressing governments for since 2013. Finally, in June, the Portuguese parliament approved some of these tax measures designed to provide companies with the right conditions to obtain capital to gain scale, develop new products, increase productivity, and expand sales domestically and overseas, creating better jobs.
“We can aways ask for more, and we will certainly continue to do so, but this government’s initiative is of the utmost importance. We all know how challenging it is to introduce new laws and beneficial tax measures for investors and companies.
“The government succeeded, and the parliament approved them by a substantial and expressive majority. This is a true and major breakthrough,” concluded Abel Sequeira Ferreira, Executive Director of the AEM.
