IFLR 1000
The Guide to the World's Leading Financial Law Firms

CONTEXT AND TRENDS
Portugal seems to have been on the brink of ruin on several occasions in the last few years. Frequently thrown in with the PIGS (Portugal, Ireland, Greece and Spain) the country has had to fend off questions and concerns about not only the scale of its sovereign debt but also how it intends to bring the volume down....

CONTEXT AND TRENDS

Portugal seems to have been on the brink of ruin on several occasions in the last few years. Frequently thrown in with the PIGS (Portugal, Ireland, Greece and Spain) the country has had to fend off questions and concerns about not only the scale of its sovereign debt but also how it intends to bring the volume down.

It is also not helpful for the country that its biggest trading partner is also going through some dark times: "We cannot predict the future because Portugal really depends on Spain," says one partner. "They import 25% of Portuguese exports. If Spain gets flu, we get pneumonia."

These wider economic concerns are not creating a stable environment for business in the country itself. As in seemingly every other country in the Eurozone, the country's banks are starved of liquidity and cautious about lending to any but the most reputed names. "Banks are not lending money as they have enough troubles themselves – not enough funds," says one partner.

With new lending becoming ever more rare, financial institutions are instead focusing on improving their balance sheets and capital ratios. For firms this does at least create a lot of work in capital markets as the banks rush to issue more paper. "Banks are currently making an effort to raise the capital requested by the IMF and European Central Bank," says one partner. "We see more bonds and notes operations." Similar work is also seen on the corporate side, with companies looking to refinance through the debt markets.

On the other side of the capital markets divide the level of activity is distinctly different. "In capital markets, there has been an increase in activities in debts, not much in equity," explains one partner. While this chimes with what is being seen in the wider EU environment, in Portugal's case there seems to be little optimism about the situation changing any time soon. Even if more companies move to the stock exchanges there simply isn't the money in the markets for share purchases.

The story is not much better in project finance. Gone are the days when large headline infrastructure projects seemed always on the verge of being inked; now it's a rare thing for discussions to even start. The March 2012 cancellation of the Madrid-Lisbon high-speed rail link, (a common sight in project finance transaction lists in recent years) was a bitter, if not unexpected blow and more projects are likely to be mothballed in the months ahead. There is still some activity in renewables, but even here the Portuguese government has been tightening its belt and the favourable tariffs seen in the pre-Lehman times have been reduced.

Across all areas of finance, one thing that is keeping firms busy is general regulatory and advisory work. Hand in hand with a fall in transactional work has been an increase in regulatory scrutiny and banks and corporate are having to keep a much closer eye on their operations for fear of straying into choppy waters. "We got more and different work than we used to do," confirms one partner. Mainly reporting, regulating and supervising."

Major lateral hires

Alexandre Jardim
From: Serra Lopes, Cortes Martins & Associados
To: Pedro Pinto, Bessa Monteiro, Reis, Branco, Alexandre Jardim & Associados

Manuel Magalhães
From: Cuatrecasas Gonçalves Pereira
To: Sérvulo & Associados

Gonçalo Capela Godinho
From: Cardigos
To: Vale (in-house)

José Pedro Fazenda Martins
From: CMVM – Portuguese Securities Commission
To: Vieira de Almeida & Associados

CONTEXT AND TRENDS
With liquidity low and the domestic market not exactly in rude health, M&A practitioners have been looking to two sources fro potential work: privatisation and expansive foreign markets. In the former, there is optimism from firms about a potential sale of assets by the Portuguese state as it attempts to reduce its sizeable debt burden....

CONTEXT AND TRENDS

With liquidity low and the domestic market not exactly in rude health, M&A practitioners have been looking to two sources fro potential work: privatisation and expansive foreign markets.

In the former, there is optimism from firms about a potential sale of assets by the Portuguese state as it attempts to reduce its sizeable debt burden. In truth the estimated €7 billion process has already been going on for the last few years and has received positive reviews so far from external analysts such as the Fitch rating agency. Electricity company EDP and the national grid operator REN have already been sold off, the next ones in line are the national air carrier – TAP, airport operator ANA, the water board – Aguas de Portugal, the postal service – CTT, public broadcaster – RTP and also parts of the rail system in Lisbon and Oporto.

While the process is accepted as necessary and, as mentioned above, is considered so far to be a success; nevertheless it is not viewed favourably in all quarters, with some worried that it will hit the country hard in the long term. "There's more coming next: TAP, ANA, water, hospitals, we're selling our jewels," says one partner.

The other area of activity seen by firms is in foreign investments, whether that be outbound from Portuguese companies to its former colonies: the likes of Angola, Mozambique and Brazil; or, as is becoming more common, inbound investment from, again, Brazil and increasingly China. In the case of the latter the investment is often targeted not at exploiting the local Portuguese and EU markets, but rather for Portuguese company's links to and assets in the oil and mineral rich African states mentioned above. "The interests in China is not just in Portugal but it's connections with Africa and Brazil," explains one partner. "Angola is a very rich supplier of mining, diamonds and commodities." There is however a note of caution from others who explain that even with these potential opportunities, the market is not a healthy one and problems and lethargy closer to home will keep workflow low. "These new opportunities will still take time to develop, we're still dependent on Spain," says one M&A partner.

CONTEXT AND TRENDS
The big change in Portugal in the last year has been the amendments made to the Insolvency and Corporate Recovery Code (CIRE). The Government's alterations are designed to encourage more restructuring and recovery of companies as opposed to the prevalence of bankruptcy and liquidation strategies that was seen before....

CONTEXT AND TRENDS

The big change in Portugal in the last year has been the amendments made to the Insolvency and Corporate Recovery Code (CIRE). The Government's alterations are designed to encourage more restructuring and recovery of companies as opposed to the prevalence of bankruptcy and liquidation strategies that was seen before.

A key change is the introduction of the Processo Especial de Revitalização de Empresas (Special Revitalisation Procedure), a new out of court process for companies allowing them to restructure and negotiate with creditors without entering full insolvency. Similar procedures, often using US Chapter 11 as a model, have been introduced in many European countries over the last few years and practitioners see it as a progressive step: Our 'new' code is very much influenced by the Chapter 11 solutions. "These codes are correctly applied. They must allow creditors and debtors to find reasonable solutions. These codes allow room for solutions to be found," says one partner. "Banks have nothing to lose by giving a chance to companies."

While most lawyers welcomed the change, some did express dissatisfaction about how long the change had taken to be implemented. Admittedly the Government could have been swifter to react, though it has to be remembered that with extraordinarily bad timing the country had altered its restructuring and insolvency regime in 2007, not realising or preparing for the financial storm that was about to blow in across the Atlantic.

In terms of general workflow, practitioners already report an increase in out of court procedures, although the rise has not been at the expense of traditional insolvencies and bankruptcies, which are also prevalent in the market. "What we've been seeing is an increasing number of companies going bankrupt or going through insolvency and restructuring proceedings," highlights one lawyer.

MAJOR LEGISLATION CHANGES

Portuguese Insolvency and Corporate Recovery Code (CIRE)
Amended May 20 2012