Government to issue bonds to buy shares in Portuguese strategic companies

Portugal’s new sovereign wealth fund which was announced by its government this week will be shares or concessions in companies considered strategic for the Portuguese State and economy.

The architect of the fund is the Ministry of Finances and is already in an advanced state regarding its legal framework and structure.

The fund will not be funded by the Portuguese taxpayer, at least not directly through the State Budget.

Neither will the government fill the fund with budget surplus money to go on its corporate shares shopping spree.

Instead the government will raise funds via the bonds market by issuing public debt (sovereign bonds) and using the money raised to buy shares or concessions in strategic companies.

As usual, the bonds will be issued through the State sovereign bond issuing entity – the Institute for Treasury and Debt Management, IGCP.

According to a well-placed source involved with the process, the plan is to create an instrument ( a fund) which will be at the disposal of this and future governments.

It does not mean that the government(s) seek to nationalise companies within these strategic sectors, but rather to analyse the purchase of shares in companies in key sectors such as banking, energy, and infrastructure, while also looking at buying concessions in certain companies.
The fund will not have an initial cash injection as is often the case with such sovereign funds. Instead, the government will identify “targets” and find a financing mechanism that will enable the State to acquire a share in the target company.

It will fall to the IGCP to set up the operation to attract capital in exchange for long-term bonds.

But that could mean that while the State will not own a Golden Share in a company (as was the case with the airline TAP in the part-privatization in 2015), but what it will do is give the Portuguese State a place in the board room on investments made by overseas investors in questions that the State deems relevant from a national sovereignty point of view, as is the case with the energy sector.

The Portuguese State currently holds around 150 positions in various companies, although not all of them are strategic.

Strategic ones include TAP, the public bank Caixa Geral de Depósitos (CGD), but there are thousands of mostly small companies.

For example, there are around 100 public-private companies where the State is the main or secondary shareholder.

They are in sectors such as banking, transport (Metro de Lisboa, CP, Transtejo and Soflusa), infrastructure (roads and rail), air traffic control (NAV Portugal). energy (8% in Galp) and health.

Then there are 151 public companies that are part of the State Enterprise Sector with 13 of them in the financial sector, and 138 in the non-financial sector.

The State holds a 100% share in CGD and the development bank Banco Português de Fomento, while until its was completely privatised earlier this year, it also held a share in Novobanco.

However, not everybody agrees that the State having strong positions in companies is a good thing as it currently stands with the President of the Confederation of Trade and Services of Portugal (CCP), Gustavo Paulo Duarte insisting: “We don’t need more State in the economy. We need a better State in the economy”.

Source: Negócios.