Portugal Guide 2013 - Euromoney Guide 2013.… · ECR score of 50.8 out of 100. This rating places Portugal in the third tier of ECR’s ˜ve-tier system. Under ECR’s methodology,

The 2013 guide toSe

ptem

ber 2

013

Published in conjunction with:

Caixa - Banco de Investimento

Caixa Geral de DepósitosEuromoney Country Risk

Portugal

�is guide is for the use of professionals only. It states the position of the market as at the time of going to press and is not a substitute for detailed local knowledge.

Euromoney Trading LtdNestor HousePlayhouse YardLondon EC4V 5EXTelephone: +44 20 7779 8888Facsimile: +44 20 7779 8739 / 8345

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Contents Open for business 1

Portugal focuses on the Atlantic front Caixa - Banco de Investimento 2

Against the odds, CGD re-opens the Portuguese covered bond market Caixa Geral de Depósitos 6

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Open for businessPortugal’s ranking in Euromoney’s Country Risk Survey has improved in recent months, suggesting economists believe the country has turned a corner. By Andrew Mortimer

In Euromoney’s longstanding survey of country risk, there are signs that global economists are increasingly optimistic about Portugal’s prospects, with many indicators of political and economic health improving in recent months.

The improvements coincide with the progress made by both state and private sector initiatives to restructure the public debt, trim the de�cit and increase �nancial stability, all of which are now bearing fruit.

The government has closed the primary budget de�cit to under 5% of GDP, bringing the cumulative adjustment already e�ected under the IMF programme to more than 6% of GDP at the end of 2012. The government projects a budget de�cit of 4% in 2014.

The banking sector has been successfully recapitalized, with all banks now attaining a core Tier 1 ratio of 10%. The IMF forecasts that the country will return to economic growth in 2014.

Return to capital marketsIn January, the government returned to the capital markets to reopen a �ve-year, $2.5 billion bond, at a yield of just under 5%. This was followed in May by a new 10-year bond issue, raising €3 billion at a yield slightly below 5.7%. The two bond issues were met with strong demand from foreign investors, with increased interest from long-term investors in the second issue.

These positive signs have translated into the country receiving an improved assessment from economists participating in Euromoney’s Country Risk Ratings (ECR), a development which bodes well for the country as it attempts to shake o� the economic and �scal challenges of the past three years.

Euromoney’s country risk rankings can be a useful guide to how macroeconomists perceive the sovereign risk pro�le of di�erent countries over time. The survey uses a simple methodology to measure political and economic risk, as well as the structural factors which a�ect a country’s risk pro�le, applying the same criteria to both advanced and emerging economies. As the survey is compiled on a real-time basis, the ratings often illustrate trends in risk perception earlier than other leading indicators, such as traditional credit ratings.

Portugal is currently ranked 64th safest country globally, with an ECR score of 50.8 out of 100. This rating places Portugal in the third

tier of ECR’s �ve-tier system. Under ECR’s methodology, a tier 3 position indicates that the country’s risk pro�le is consistent with an investment grade rating from the rating agencies.

In June 2013, Portugal’s ECR ranking improved in response to the European Commission’s �scal policy recommendations, under which eurozone member states receive extra time to correct their �scal de�cits. The sovereign’s ECR score improved by 0.1 points, boosting its ECR global ranking by two places, to 64.

“The extension of the de�cit reduction targets o�ers a more credible and sustainable �scal adjustment programme for the Portuguese government to reach,” says Rui Constantino, chief economist at Banco Santander and one of ECR’s expert contributors. “The government aims to meet these de�cit reduction targets through structural expenditure cuts. In terms of the commitment it is credible and o�ers a thorough revision of government expenditure.”

Vote of con¢denceTellingly, Portugal’s ECR score has never fallen below tier 3, despite the recession the country experienced and the volatility of its sovereign credit. The resilience of the country’s score is a vote of con�dence by global economists in the underlying strength of the country’s economy and its ability to bounce back.

For a picture of the e�ect that the government’s economic reforms are having on Portugal, look no further than Euromoney’s bank stability indicator, a measure of economists’ faith in the liquidity and creditworthiness of a country’s �nancial system. Portugal’s score has signi�cantly improved over recent quarters as the package of measures put in place by policy-makers has taken e�ect.

Also showing signs of improvement is Portugal’s score in the survey’s access to capital markets indicator. This metric, which measures the ease with which syndication desks at money centre global banks believe they could arrange dollar funding for a corporate or sovereign in a given market, has improved by two points out of 10 since March 2012, re�ecting both the return to solvency of the domestic banking sector and the sovereign’s successful return to the capital markets in January 2012.

All signs increasingly point towards a restoration of prosperity and economic growth in a Portugal once again open for business.

Portugal - strong focus on the Atlantic frontPortuguese companies have been extremely successful with their internationalization strategies in recent years, making them solid partners for international players seeking privileged access to emerging markets

The economic context has been challenging for Portugal - driven, on the home front, by macro-economic imbalances and externally by the global �nancial crisis - leading to downbeat investor sentiment. Despite this, and the limited internal market, Portuguese corporates have shown great resilience, focusing on business and geographical risk diversi�cation, bene�ting from the fact that the country is one of the most open economies in the European Union.

A signi�cant number of Portuguese companies, in sectors such as utilities, renewable energy, oil and gas, construction and retail, have been able to create growth strategies and equity stories sustained by the internationalization of their activities, not only in booming Portuguese-speaking economies like Brazil, Angola and Mozambique, where historical and cultural a�nities play a role, but also in high-growth emerging markets in Latin America and Eastern Europe (Colombia, Peru and Poland, for example).

The success of these internationalization strategies, very much focused on the Atlantic front, has attracted signi�cant interest. International investors, although increasingly selective considering the overall economic context, are keen to bene�t from the know-how and experience of Portuguese groups in high-growth emerging countries in Latin America and Africa. They see investment in such companies as a way to gain access to regions with considerable growth prospects and also as a means to diversify their portfolios.

Privatization success at homeA good example of this growing interest is the success of the Portuguese government’s privatization programme, which has been a catalyst for equity capital markets and M&A deals in recent years, beating all initial expectations. Since the revitalization of the privatization plan, the Portuguese state has achieved sale proceeds of around €6.1 billion (well above the initial estimate of about €5 billion for the overall programme).

Recent privatizations include the sale of strategic stakes in listed companies, such as the sale of a 21.35% equity stake in EDP (energy generation, distribution and supply) to China Three Gorges (€2.69 billion) and the sale of 40% of the share capital of REN (power grid operator) to State Grid Corporation and Oman Oil Company (€592 million).

These sales, in which CaixaBI acted as �nancial adviser to the Portuguese state, attracted widespread attention from some of the largest energy groups in the world (including companies from China, Brazil, Germany and the Middle East), which were interested

in these companies’ strong international exposure and/or solid internationalization prospects, among other aspects. EDP already had strong international coverage, with a relevant presence in Brazil and in renewable energies worldwide. REN was starting to develop an internationalization strategy focused on Brazil and Portuguese-speaking countries in Africa.

These privatizations included the establishment of strategic partnerships focusing on the international markets, aiming to strengthen the investment pro�le of the target companies and contribute in a decisive way to their growth and internationalization. The key strategy driver for these partnerships is to create mutually bene�cial agreements, whereby the market knowledge and historical experience of Portuguese companies in these emerging markets is coupled with the industrial know-how and greater �nancial capacity of international groups, ultimately leading to a win-win scenario for both partners.

Other privatizations were executed through the Portuguese equity capital market: the issue by a Portuguese state agency of exchangeable bonds into shares of the oil and gas company Galp Energia (€885 million) and the conclusion of EDP’s reprivatization process via an accelerated bookbuilding of 4.144% of the company’s share capital (€356 million). The majority of both issues was placed with international investors. CaixaBI again acted as �nancial adviser in both deals.

Further deals have been concluded successfully in the Portuguese equity market in the past few months, involving Galp Energia and retail group Jerónimo Martins. Once again, international investors showed a strong appetite for Portuguese equities with international exposure in high-growth markets such as Brazil, Poland and Colombia.

The Portuguese government has shown a strong commitment to improving the dynamics of the economy and equity capital market. It plans further privatizations, some of which may be through public o�erings. Important companies such as Caixa Seguros (insurance), CTT (postal services), EGF (waste management) and the Lisbon and Oporto public transport networks may be among them. The remaining stake in REN is also expected to be privatized in the medium term, through an equity capital market transaction.

An improved dynamic in the M&A and equity capital market may be fundamental to the Portuguese economy, by attracting international investors’ interest and providing Portuguese companies with the possibility of �nancing their business plans,

� e Portuguese privatization programme is a key driver for the increase in competitiveness and internationalization of the Portuguese economy

Airport Management

2011 2012 2013 - (...)

Energy Generation & Distribution

Energy Transmission

Bank

Divestment of the State’s equity stakes in the two Portuguese energy utilities, which were already partially privatized...

...and the sale of the BPN bank, nationalized in 2008.

The sales of the state-owned airport infrastructure operator and the health business of state-owned bank CGD were concluded at the end of 2012 (�nancial closing at the beginning of 2013), along with the sale of the remaining 1% in Galp Energia...

whilst the state-owned �agship airline privatization was put on hold; the TV & Radio and the shipyard companies are currently under analysis.

Health

Shipbuilding & Repair

TV & Radio Broadcasting

Water

Postal Services

Insurance

In 2013 the remaining stake in EDP was sold. The privatizations of CGD’s insurance business, the postal services operator, the water utility and waste management business, the remaining stake in REN, the public railway logistics company and Lisbon and Oporto transportation networks are expected to occur in 2013-14.

(21.35%)

(40%) Railway Logistics

Air Transport ?

The sale of TAP was put on hold by the Government, as the binding o�er received was not accepted;

the Government is studying alternatives to relaunch the

privatization

?

?

Despite several interested parties which submitted proposals, the European Commission began a formal enquiry regarding State subsidies that were given to the

company during recent years, thus halting the sale process

Lisbon and Oporto Public Transportation

Networks

(1) Subsidiaries of state-owned companies (2) To be privatized through a market o�ering

(1)

(1)

(1)

Oil & Gas (1%)

Energy Transmission

(11%) (2)

Energy Generation & Distribution

(4.14%)

Waste Management

1.0

2.0

3.0

4.0

May-11 Jul-11 Sep-11 Nov-11

Sale price €3.45

Market price premium in EDP’s eighth reprivatization phase

Source: Bloomberg

Source: CaixaBI

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unlocking internationalization strategies and taking advantage of M&A opportunities.

Most sectors in Portugal are undergoing a consolidation process, not only as a way of bene� ting from the potential for optimization and synergies, but also to gain critical mass to expand internationally. Foreign investment and the establishment of partnerships for the international markets may be key drivers in this consolidation process.

Selected transactions(1) EDP eighth reprivatization phase through the direct sale of a 21.35% equity stake (€2.693 billion)In September 2011, Parpública launched the eighth phase of the reprivatization of EDP, having selected China Three Gorges (CTG), China’s largest clean energy group, to purchase a 21.35% stake in EDP. For this stake CTG paid €2.693 billion, or €3.45 a share, representing a 53.6% premium over EDP’s pre-transaction market price of 21 December (one day prior to the announcement) and making it the largest privatization ever in Portugal.

Additionally, EDP and CTG established a strategic partnership, including: (i) combined e� orts to become worldwide leaders in renewable energy; (ii) investment by CTG of €2 billion until 2015 in the acquisition of stakes of between 34% and 49% in 1.5GW (net) of operational and ready-to-build renewable energy generation projects; and (iii) a � rm funding commitment by a Chinese � nancial institution to EDP at corporate level in the amount of up to €2 billion for a maturity up to 20 years.

CTG also made a strong commitment to the development of the Portuguese economy via the creation of a locally based renewables

R&D platform, the potential establishment of a wind turbine plant in Portugal and the sharing of technical expertise.

EDP’s internationalization pro� le and access to emergent economies was a key factor in CTG’s interest, which acknowledged EDP’s sound business and geographic diversi� cation strategy, establishing a mutually bene� cial agreement to grow their businesses.

(2) Conclusion of EDP’s seventh reprivatization phase through an accelerated bookbuilding of 4.144% of the company’s share capital (€356.1 million)The Portuguese state divested a stake of 4.144% in EDP’s share capital (corresponding to the securities underlying the exchangeable bonds issued by Parpública in 2007) through an accelerated bookbuilding in February 2013, in which CaixaBI acted as � nancial adviser and joint bookrunner. The o� er amounted to approximately €356.1 million and

1.4

1.6

1.8

2.0

2.2

2.4

2.6

Feb/12 Apr/12 Jun/12 Aug/12 Oct/12 Dec/12 Feb/13

( /

Shar

e)

EDP Share Price O�er Price

lizarB(São Paulo)

EUROPE

SOUTH AMERICA Portuguese-speaking AFRICA

Base of operations per targeted region

CaixaBI’s mission is to lead a dynamic investment banking business platform between Portugal, Spain, Brazil and Portuguese-speaking Africa, providing its clients with global reach and integrated �nancial services, leveraging on its international presence as well as on CGD Group’s commercial network.

BCG Brasil is headquartered in São Paulo and since 2009, when the investment

banking activity was initiated, it has built a signi�cant presence in the Brazilian market.

In 2012 CGD has concluded the purchase of 100% of one of the leading Brokerage

Agencies in Brazil (CGD Securities)

Brazil: Corporate & Investment Bank and Broker

Iberia: Coordination of CGD’s investment banking and venture capital operations

alognA(Luanda) Mozambique

(Maputo)

airebI(Lisbon & Madrid)

South Africa:

South Africa (Johannesburg)

Cape Verde & S. Tomé and Principe

Mozambique:Commercial Bank

BCI is the second largest commercial bank in Mozambique

Angola: Commercial Bank

CGD is present in Angola since 2009, in a partnership with local shareholders and Santander

Totta. Caixa Totta is present in 9 provinces.

Macao:

Banco de Investimento

Banco de Investimento

CaixaBI: a strategy supported on a Portuguese-speaking network

EDP share price performance 12 months prior to the o¥ er

Source: CaixaBI

represented the end of EDP’s reprivatization process, which started in June 1997.

The o� er achieved a high level of success, with demand exceeding more than twice the total shares for sale and coming from high-quality, mostly long-only, investors. About 95% of the o� ering was placed with international investors.

The discount obtained compared to the previous day’s closing price was 2.97%, well below the average discounts in similar operations in

2012, both in the Iberian peninsula (4.6%) and in Europe as a whole (4.2%). Additionally, the o� er’s price represented a premium of 8% in relation to EDP’s weighted average share price in the six months prior to the o� er.

The o� ering was executed in a very favourable market window, bene� ting from the performance of the � nancial markets since the beginning of the year and of EDP’s shares since early December 2012. This created a positive context for the o� er, with EDP’s closing share price in the previous session reaching the maximum of the past 12 months.

CaixaBI’s role in support of internationalization strategiesCaixaBI is the investment banking division of CGD group, the largest � nancial services group in Portugal. It is the leading player in the Portuguese M&A and equities market, having participated in the major transactions involving Portuguese companies in recent years. CaixaBI has been developing a cross-border strategy to build a dynamic investment banking business platform between Portugal, Spain, Brazil and Portuguese-speaking Africa, providing global clients in these regions, both Portuguese and international, with an integrated � nancial service, leveraging on the CGD group’s worldwide commercial network.

In this context, in mid-2004 CaixaBI established a branch in Spain, having, in February 2005, successfully concluded its � rst M&A

Source: Bloomberg

Examples of recent transactions: CaixaBI as ¢ nancial adviser / bookrunner

Banco de Investimento

Source: CaixaBI

Advisor & Bookruner | 2013

Sale through an accelerated bookbuilding of a stake of

EDP share capital

€ 356 M

Advisory in the sale of a 40% stake of

In the context of the 2nd phase of the reprivatization process

| 2012 Financial Advisor

€ 592 M € 592 MFinancial Advisor | 2012

Advisory in the sale of a 15% stake of

US$ 97 M

| 2011 Financial Advisor

Advisory in the sale of a stake in the capital of

Petrogal Brasil

US$ 4,800 M

| 2011

Advisory in the acquisition of a stake in the capital of

Financial Advisor

R$ 8,320 M Advisor & Bookrunner | 2010

Exchangeable Bonds due

2017 into Shares of

5th Privatisation Phase

€ 885,650,00 Financial Advisor | 2010

Advisory in the sale to Telefónica of PT’s stake in

€ 7,500 M

Financial Advisor | 2011

Advisory in the sale of a 21.35% stake of

in the context of the 8th phase of the reprivatisation process

21.35% stake of

in the context of the 8th phase

€ 2,693 M

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transaction in that country: the acquisition of a stake in Gescartão from Sonae Group by Spanish pulp and paper company Europac. Other examples of CaixaBI’s operation in Spain include the acquisition of Cintra Aparcamientos by A Silva & Silva Group and the acquisition of natural gas supply assets in the Madrid region by Galp Energia.

Additionally, CaixaBI has been present since 2001 in the Brazilian M&A market, initially through a partnership with Unibanco and, since 2009, through Banco Caixa Geral - Brasil (the CGD group wholesale and investment bank in Brazil). It has participated in several landmark transactions, including the $4.8 billion capital increase in Petrogal Brasil (Galp Energia group) subscribed by Sinopec, the acquisition of a stake in the capital of Brazilian group Oi by PT Group (R$8.3 billion) and the sale to Telefónica of PT’s indirect stake in Vivo (€7.5 billion).

To reinforce CaixaBI’s capacity in investment banking in Brazil, speci� cally its ability to act more consistently in the equity capital market, CGD group acquired the broker CGD Securities, one of the leading providers of online brokerage services in Brazil. With its headquarters in São Paulo and a branch in Rio de Janeiro, CGD

Securities is an execution broker of BM&F Bovespa, with custodial and settlement services, and provides equity research coverage of the most signi� cant Brazilian companies and sectors.

In recent years, CaixaBI has participated in several Brazilian equity capital market transactions (IPOs and follow-ons), such as those of Santander Brasil, EDP Energias do Brasil, Sonae Sierra Brasil and CCR.

CaixaBI and CGD group are also reinforcing the expansion of their international investment banking activity, notably in Portuguese-speaking Africa, with the establishment of local presences in Angola and Mozambique.

CaixaBI’s goal is to be the leading investment banking partner for Portuguese and international companies with interests in Iberia, Africa and Brazil, leveraging on a profound knowledge of these markets and a solid local presence.

CaixaBI acted as � nancial adviser and/or bookrunner in the following processes:

For further information please visit www.caixabi.pt or contact one of the following individuals:

Paulo Oliveira SilvaHead of M&AEmail: [email protected]

Ana Santos MartinsHead of Equity Capital [email protected]

Allocation by type of investor

Investors Allocation. €500 million 3 year unsecured senior

UK, 34%

France, 12%

Portugal, 12%

Italy, 10%

Other, 8%

Germany & Austria, 7%

Switzerland, 7%

Spain, 5% Benelux, 3% Middle East,

2%

Investment

funds

66%

Banks

23%

Insurance 4%

Other 7%

Allocation by geography

Against the odds, CGD re-opens the Portuguese covered bond marketTwo successful issues in recent months have brought international investors back to the Portuguese bond market

Exploiting more favourable market conditions since summer 2012, with the announcement of the European Central Bank’s outright monetary transactions and the subsequent reduced risk of a euro-zone break-up, Caixa Geral de Depósitos (CGD) shrugged o� several rating downgrades and, in November 2012, after an absence of almost three years, returned to the international markets by launching a new bond issue of €500 million in three-year unsecured senior debt with a coupon rate of 5.625%. Less than two months later, in January this year, CGD again tested investor interest, this time with a �ve-year €750 million, 3.75% coupon (mid-swap + 285 basis points and close to 100bps under the sovereign) issue of Obrigações Hipotecárias (OHs - Portuguese covered mortgage bonds). The last OH issue had been back in March 2010.

Thanks to improved sentiment on EU debt, growing investor con�dence in the bank and in the country and a context of supply/demand imbalance, CGD was able to complete two very successful deals, clearly demonstrating its ability to access the capital market and to resume market operations. Without signi�cant re�nancing needs and bene�ting from a very comfortable liquidity situation, CGD intended with these two transactions mainly to test market appetite and to wave the �ag of its credit quality once again.

In both deals, the quality and size of the order books, the level of oversubscription, widespread distribution and swift execution exceeded the highest expectations. Strong primary demand was echoed by good secondary performance. CGD bond prices

have rallied, with the spreads of both new issues tightening since the launch date, although this became less signi�cant after March. Nevertheless, the tone and trend in spreads remained constructive, despite some volatile periods in line with the volatility of Portugal’s sovereign debt due to exogenous and short-lived political factors.

External investors have returned in force, with non-domestic placement of both issues exceeding 90% of the total. In that regard, it should be mentioned that the covered bond issue took place at a time of very low global supply, as the �rst half of 2013 saw the lowest level of primary market activity since 2009, with around €58 billion in new issues and taps of benchmarks.

Rating agency DBRS rated the January OH issue as ‘A’ and con�rmed the same rating on all OH outstanding upon implementation of the Updated Rating European Covered Bonds methodology, published on 16 January 2013.

Following this new issue and partial repayment of the �rst series, the total outstanding amount of securities under CGD’s programme is €7.851 billion.

The nominal level of over-collateralization is approximately 40%. While the iBoxx Euro Covered shows performance of 1.4%, the high carry advantage and price gains on covered bonds from Portugal led to an above-average total return of around 4.1%. The new OH issue sent a positive signal to other Portuguese banks, paving the way for further issuance.

Source: CGD

Allocation by type of investorAllocation by geography

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During the recent period of aggravated �nancial distress, Portuguese covered bonds, issuance of which was inaugurated by Caixa in 2006, have proved to be very resilient, comparing well with other more established European jurisdictions, thanks to market players’ favourable risk perception of the bonds. Issuance, regulated by Decree-Law 59/2006, is allowed only for credit institutions legally authorized to grant mortgage credit, which can be either universal banks or ‘specialized mortgage institutions’, a type of institution also created by the same law. In spite of the poor macroeconomic situation, the legal framework of an OH has particular features that contribute to their inherent robustness.

Some of the advantages of Portuguese OH are: the high quality of the collateral (only �rst-ranking mortgages within the EU), the signi�cant level of overcollateralization to absorb potential economic losses, the segregation of cover assets on the balance sheet in a dedicated register, the proper valuation of the collateral according to the terms set by the regulator and the holders’ preferential claim over the segregated pool. In the event of an issuer’s bankruptcy, the OH holders either decide to accelerate the bonds at a bondholders’ meeting (by a two-thirds majority) or the segregated pool is separated from the insolvent estate and managed autonomously by a manager appointed by the Central Bank until the OH holders have been repaid in full. The Central Bank

Investors Allocation. €750 million 5 year covered bonds

Spain10%

Portugal10%

Germany& Austria19%

France13% Italy

2% Benelux2%

Andorra1%

UK19%

Switzerland11%

Scandinavia7%

Other6%

Investmentfunds 62% Banks

25%

Insurance 9%

Private banks 2%

Other 2%

Source: CGD

Characteristics of Portuguese covered bonds

Country of Issuance Portugal (Obrigações Hipotecárias)

Type of Issuer Universal credit institution / Specialised credit Institution

Supervision Bank of Portugal and CMVM (Capital Market Regulator)

Monitoring Independent auditor must verify compliance with all legal and regulatory requirements as well as auditing collateral

Location of assets Directly on B/S of the issuer

Bond format Typically, �xed rate, soft bullet, with the possibility to extend maturities by up to 12 months at the discretion of the issuer

Legal Framework / Bankruptcy of the issuer for covered bonds Speci�c legal framework superseding the general insolvency law

Collateral Mortgage loans/ Public Sector Loans/Substitution assets (up to 20%)

Non-performing collateral NPLs greater than 90 days must be removed from the cover pool

Geographical scope EEA

Basis for property valuation Market Value

LTV limits 80% residential/ 60% commercial

Risk mitigating provisions By legislation/Regulation for Interest rate, Foreign exchange and Maturity mismatch risk

Mandatory overcollateralisation Yes, by law 5.26%

Acceleration in case of issuer insolvency Not automatically, but the bondholders' meeting may decide to call the bonds

Protection against claims from other creditors in case of insolvency of the issuer Segregation from the general insolvency estate by law

Recourse to the issuer's insolvency estate upon a cover pool default Yes, pari passu with unsecured creditors

Derivatives in the cover pool / ranking Yes, pari passu to covered bond holders

Ful�lling UCITS 22(4) criteria Yes

Repo eligibility Yes

Risk weighting 10%

Market share in Portugal (as of June 2013)

14.8%

15.5%

16.4% 16.4%

17.3%17.6%

14.5%

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

Dec ’08 Dec ’09 Dec ’10 Dec ’11 Dec ’12 Jun ’13

27.5%

Source: CGD

requires continuous reporting of information and there is ongoing surveillance of the pool and of bond’s performance. OHs also enjoy a favourable tax regime, being exempt from stamp duty and withholding tax on interest payments made to non-resident investors.

The law provides for derivative contracts (signed with suitably rated counterparties) to be included in the pool exclusively to cover risks. Due to concerns about the liquidity of the pool, issuers have recently been incorporating additional features into the existing programmes to tackle any hypothetical liquidity shortfalls.

A prudent funding policyBetter funding conditions, increasing customer deposits and additional resources from the recent capital exercise, together with orderly balance-sheet deleveraging and very favourable performance of individuals’ deposits, which maintained positive growth rates in spite of the decrease in disposable income and labour market deterioration, have also allowed CGD to reduce its reliance on Eurosystem liquidity, including through partial repayment of the three-year long-term �nancing operation (LTRO). In the �rst half of the year, CGD Group reduced its borrowing from the ECB by €2 billion to €6.45 billion.

No less important, strong collateral bu�ers provide CGD with an important shield against potential adverse liquidity shocks.

CGD Group’s eligible assets pool at the end of the half year totalled €17 billion, with an uncommitted amount of €10.6 billion.

CGD pursues a conservative funding policy, giving �rst priority to customer deposits, which in June 2013 contributed approximately 80% of total group funding needs. The wholesale funding redemption pro�le is skewed towards the short term, with over €5 billion due before the end of 2016 out of approximately €8 billion.

The fragile macroeconomic situation did not prevent and may well have contributed to the continuous increase in customer deposits in CGD, whose market share in Portugal remained close to 28% (more than 32% on the individual customer segment).

CGD’s clear leadership in terms of resource taking is one of the visible results of its credibility in the eyes of the Portuguese population.

CGD’s approach to the debt markets is based on the principle that resources required for funding client activities must be covered by stable and not costly funding. The bank is run as if wholesale funding could suddenly disappear. However, CGD believes that funding diversi�cation is a key element in running the bank over time.

Before Portuguese credits were forced out of international markets in the second half of 2010, CGD, thanks to its very good name recognition and high quality credit, was an infrequent but regular issuer in the international debt markets, developing di�erent sources of funds for diversi�cation purposes.

Despite the very limited reliance on wholesale funding, diversi�cation is a major guideline of CGD’s funding policy. With this aim, CGD has developed, since its debut issue in the international markets back in 1999, a systematic and continuous approach with investors and other market players based on a long-term commitment strategy, cultivating a diverse and �exible investor pool.

Before the crisis, CGD made at least one benchmark appearance each year, being seen as a scarce but popular name within various prestigious investor communities.

After a prolonged ‘dark’ period, during which the markets virtually closed their doors to Portuguese issuers, a more benign sentiment towards the country gradually became evident towards the end of 2012, creating room for the re-engagement of Caixa with its former investor base and for its public reappearance in the international capital markets.

A �nancial reference in PortugalCaixa is an institution whose mission and pro�le result from its characteristics as a public limited liability company comprising exclusively public capital (the sole bank fully owned by the Portuguese state). It has additional responsibilities in its active contribution to the transformation and stability of the �nancial situation and the recovery of activity and sustained balance of the economy.

In furthering these objectives, Caixa has strengthened its leading position as the bank of preference for Portuguese households while also fortifying its business with all corporate segments, paying special attention to those that represent added value for the upturn of the Portuguese economy.

Deposits from customersCorporate loans

2013

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For further information please visit www.cgd.pt or contact the Investor Relations Office:

Email: [email protected]

Tel: +351 217 953 000

Fax: +351 217 953 479

In a di�cult macroeconomic framework, in which the recession has been deeper than forecast and unemployment reached an all-time high, the promotion of savings represents a crucial challenge that Caixa has seriously pursued.

Of major importance has also been the role of Caixa’s wide international platform in the development of international business.

In the context of the expected upswing in economic activity, Caixa is adjusting its business model to the new objectives and the needs of di�erent segments of its customer base.

CGD is the largest �nancial group in Portugal, with more than 4 million customers and assets in excess of €112 billion. It was set up by the Portuguese state in 1876. Since 1993 CGD has been a joint stock company with capital wholly held by the state. CGD is an integrated one-stop �nancial services group, active in classic banking business. Retail is its core activity, but it is also involved in insurance (ranking �rst in both life and non-life segments, with market shares of 29.4% and 26.5% respectively), leasing, factoring, investment banking and asset management. The branch network, at the end of the last semester, comprised 814 branches in Portugal (of which 22 are self-service and 34 ‘corporate o�ces’) and 1,284 worldwide.

Caixa is a bank for the modern age. Innovation is a continuous driver of business development as it endeavours to keep pace with the latest and most advanced developments in new technologies. By designing and developing new channels and networks, and adopting innovative service and business models targeted at fast-moving customer pro�les, Caixa forged stronger links with its customers as well as contributing to the optimization of costs in the pro�tability equilibrium.

None of the Portuguese banks is as diversi�ed in its international reach as CGD, which is present in 23 countries on four continents. Its main presences are in high-growth economies in Africa, Asia and the Americas covering the most dynamic trade corridors.

In its awareness of the crucial role played by foreign trade and international business in revitalizing and restructuring the Portuguese economy, CGD remains profoundly committed to supporting and monitoring the internationalization actions and strategies of Portuguese companies, using its extensive international platform as a unique and integrated network.

In the persistent di�cult environment, international operations act as an important source of loss mitigation. In the medium term, they remain vital for CGD to maintain capital preservation and generation, until domestic pro�tability turns positive.

The group’s consolidated net results contribution from its overseas operations (excluding Spain, which is considered a natural extension of the domestic network) was €35.8 million in the �rst six months of 2013. Con�rming the group’s strategy of increasing its focus on regions with high growth potential, important contributions continue to be made by Macau, Mozambique, Angola and South Africa. In the so-called mature markets, special reference should be made to the good performance of CGD’s branch in France, a country which is also not immune to a new environment of slower growth and persistent uncertainty.

Special mention should also be made of the path trodden by the group over the years of combining business strategy with its contribution to sustainable development and corporate responsibility, encompassing such comprehensive aspects as environmental equilibrium, academic merit, young talent and entrepreneurship, social insertion and the promotion of �nancial education in an endeavour to contribute towards citizens making better-informed and favourable decisions. CGD furthers a structured, comprehensive sustainability programme, recognized by national and international entities that regularly monitor and audit its performance.

Notwithstanding the fact that CGD has a good solvency and liquidity situation, the persistence of a framework of severe recession, very low interest rates and subsequent compressed �nancial margins, together with the still high volume of credit impairments (albeit on a recent downward trend) are visibly hitting Caixa’s pro�tability, which has registered consolidated net losses since 2011.

For over 130 years, CGD has based its credibility and success on three core vectors: market leadership, trust and social commitment.

With Portugal still facing strong economic headwinds and in a context of very mild signs of recovery in the Euro area, Caixa is shifting to a new paradigm, focusing on the banking business as its core activity. In parallel, it undertook a signi�cant balance sheet restructuring and embarked on an ambitious e�ciency-driven operational transformation.

The second half of 2013 began with some signs of higher con�dence both from individuals and corporates, creating room for CGD to believe that the bank’s internal reforms currently in progress will prove soon to be fruitful, highlighting its robustness and strength as well as its crucial role in the Portuguese economy.

In spite of the current di�cult environment, CGD has no intention of diverting from its traditional strengths and values, being more than ever committed to exploiting them so as to continue generating domestic and international value and meriting the con�dence of the Portuguese people.