Portugal. The 2013 guide to. Published in conjunction with: Caixa - Banco de Investimento Caixa Geral de Depósitos Euromoney Country Risk

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1 The 2013 guide to Portugal September 2013 Published in conjunction with: Caixa - Banco de Investimento Caixa Geral de Depósitos Euromoney Country Risk

2 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 This 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 Ltd Nestor House Playhouse Yard London EC4V 5EX Telephone: Facsimile: / 8345 Chairman: Richard Ensor Directors: Sir Patrick Sergeant, The Viscount Rothermere, Christopher Fordham (managing director), Neil Osborn, Dan Cohen, John Botts, Colin Jones, Diane Alfano, Jane Wilkinson, Martin Morgan, David Pritchard, Bashar Al-Rehany, Andrew Ballingal, Tristan Hillgarth Advertising production manager: Amy Poole Journalist: Andrew Mortimer (ECR) Printed in the United Kingdom by: Wyndeham Group Euromoney Trading Ltd London 2013 Euromoney is registered as a trademark in the United States and the United Kingdom.

3 Open for business Portugal 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 deficit and increase financial stability, all of which are now bearing fruit. tier of ECR s five-tier system. Under ECR s methodology, a tier 3 position indicates that the country s risk profile 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 fiscal policy recommendations, under which eurozone member states receive extra time to correct their fiscal deficits. The sovereign s ECR score improved by 0.1 points, boosting its ECR global ranking by two places, to 64. The government has closed the primary budget deficit to under 5% of GDP, bringing the cumulative adjustment already effected under the IMF programme to more than 6% of GDP at the end of The government projects a budget deficit of 4% in 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 The extension of the deficit reduction targets offers a more credible and sustainable fiscal 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 deficit reduction targets through structural expenditure cuts. In terms of the commitment it is credible and offers a thorough revision of government expenditure. Return to capital markets In January, the government returned to the capital markets to reopen a five-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 off the economic and fiscal challenges of the past three years. Euromoney s country risk rankings can be a useful guide to how macroeconomists perceive the sovereign risk profile of different countries over time. The survey uses a simple methodology to measure political and economic risk, as well as the structural factors which affect a country s risk profile, 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 Vote of confidence Tellingly, 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 confidence by global economists in the underlying strength of the country s economy and its ability to bounce back. For a picture of the effect 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 financial system. Portugal s score has significantly improved over recent quarters as the package of measures put in place by policymakers has taken effect. 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, reflecting both the return to solvency of the domestic banking sector and the sovereign s successful return to the capital markets in January All signs increasingly point towards a restoration of prosperity and economic growth in a Portugal once again open for business Guide to Portugal 1

4 Portugal - strong focus on the Atlantic front Portuguese 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 financial 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 diversification, benefiting from the fact that the country is one of the most open economies in the European Union. A significant 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 affinities 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 significant interest. International investors, although increasingly selective considering the overall economic context, are keen to benefit from the knowhow 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 home A 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). 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 Portuguesespeaking countries in Africa. These privatizations included the establishment of strategic partnerships focusing on the international markets, aiming to strengthen the investment profile 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 beneficial agreements, whereby the market knowledge and historical experience of Portuguese companies in these emerging markets is coupled with the industrial know-how and greater financial 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 financial 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 offerings. 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. These sales, in which CaixaBI acted as financial 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 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 financing their business plans,

5 The Portuguese privatization programme is a key driver for the increase in competitiveness and internationalization of the Portuguese economy (...) Divestment of the State s equity stakes in the two Portuguese energy utilities, which were already partially privatized... (21.35%) (40%) Energy Generation & Distribution Energy Transmission...and the sale of the BPN bank, nationalized in Bank (1) Subsidiaries of state-owned companies (2) To be privatized through a market offering 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 (financial closing at the beginning of 2013), along with the sale of the remaining 1% in Galp Energia... (1%) (1) Health Oil & Gas Airport Management whilst the state-owned flagship airline privatization was put on hold; the TV & Radio and the shipyard companies are currently under analysis. TV & Radio Broadcasting 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? Air Transport Shipbuilding & Repair?? 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 Postal Services Railway Logistics Lisbon and Oporto Public Transportation Networks The sale of TAP was put on hold by the Government, as the binding offer received was not accepted; the Government is studying alternatives to relaunch the privatization (4.14%) (1) (1) (11%) (2) Energy Generation & Distribution Water Waste Management Insurance Energy Transmission Source: CaixaBI unlocking internationalization strategies and taking advantage of M&A opportunities. R&D platform, the potential establishment of a wind turbine plant in Portugal and the sharing of technical expertise. Most sectors in Portugal are undergoing a consolidation process, not only as a way of benefiting 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 ( 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 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 efforts 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 firm funding commitment by a Chinese financial 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 EDP s internationalization profile and access to emergent economies was a key factor in CTG s interest, which acknowledged EDP s sound business and geographic diversification strategy, establishing a mutually beneficial 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 ( 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 financial adviser and joint bookrunner. The offer amounted to approximately million and Market price premium in EDP s eighth reprivatization phase 4.0 Sale price May-11 Jul-11 Sep-11 Nov-11 Source: Bloomberg 2013 Guide to Portugal 3

6 EDP share price performance 12 months prior to the offer , both in the Iberian peninsula (4.6%) and in Europe as a whole (4.2%). Additionally, the offer s price represented a premium of 8% in relation to EDP s weighted average share price in the six months prior to the offer. 2.4 ( / Share) Feb/12 Apr/12 Jun/12 Aug/12 Oct/12 Dec/12 Feb/13 EDP Share Price Offer Price Source: Bloomberg represented the end of EDP s reprivatization process, which started in June The offer achieved a high level of success, with demand exceeding more than twice the total shares for sale and coming from highquality, mostly long-only, investors. About 95% of the offering was placed with international investors. The offering was executed in a very favourable market window, benefiting from the performance of the financial markets since the beginning of the year and of EDP s shares since early December This created a positive context for the offer, 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 strategies CaixaBI is the investment banking division of CGD group, the largest financial 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 financial service, leveraging on the CGD group s worldwide commercial network. The discount obtained compared to the previous day s closing price was 2.97%, well below the average discounts in similar operations in In this context, in mid-2004 CaixaBI established a branch in Spain, having, in February 2005, successfully concluded its first M&A CaixaBI: a strategy supported on a Portuguese-speaking network Brazil: Corporate & Investment Bank and Broker Iberia: Coordination of CGD s investment banking and venture capital operations 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 Banco de Investimento reach and integrated financial services, leveraging on its international presence as well as on CGD Group s commercial network. EUROPE BCG Brasil is headquartered in São Paulo and since 2009, when the investment banking activity was initiated, it has built a significant presence in the Brazilian market. Iberia (Lisbon & Madrid) Macao: In 2012 CGD has concluded the purchase of 100% of one of the leading Brokerage Agencies in Brazil (CGD Securities) SOUTH AMERICA Brazil (São Paulo) Banco de Investimento Portuguese-speaking AFRICA Cape Verde & S. Tomé and Principe Angola (Luanda) Mozambique (Maputo) Mozambique: Commercial Bank BCI is the second largest commercial bank in Mozambique South Africa (Johannesburg) Angola: Commercial Bank Base of operations per targeted region CGD is present in Angola since 2009, in a partnership with local shareholders and Santander Totta. Caixa Totta is present in 9 provinces. South Africa: Source: CaixaBI

7 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$8.3 billion) and the sale to Telefónica of PT s indirect stake in Vivo ( 7.5 billion). To reinforce CaixaBI s capacity in investment banking in Brazil, specifically its ability to act more consistently in the equity capital market, CGD group acquired the broker CGD Securities, one of the leading providers of online brokerage services in Brazil. With its headquarters in São Paulo and a branch in Rio de Janeiro, CGD Securities is an execution broker of BM&F Bovespa, with custodial and settlement services, and provides equity research coverage of the most significant Brazilian companies and sectors. In recent years, CaixaBI has participated in several Brazilian equity capital market transactions (IPOs and follow-ons), such as those of Santander Brasil, EDP Energias do Brasil, Sonae Sierra Brasil and CCR. CaixaBI and CGD group are also reinforcing the expansion of their international investment banking activity, notably in Portuguesespeaking Africa, with the establishment of local presences in Angola and Mozambique. CaixaBI s goal is to be the leading investment banking partner for Portuguese and international companies with interests in Iberia, Africa and Brazil, leveraging on a profound knowledge of these markets and a solid local presence. CaixaBI acted as financial adviser and/or bookrunner in the following processes: Examples of recent transactions: CaixaBI as financial adviser / bookrunner Sale through an accelerated bookbuilding of a stake of EDP share capital Advisory in the sale of a 40% stake of Advisory in the sale of a 15% stake of Advisory in the sale of a 21.35% stake of 356 M Advisor & Bookruner 2013 In the context of the 2 nd phase of the reprivatization process 592 M Financial Advisor 2012 US$ 97 M Financial Advisor 2012 in the context of the 8 th phase of the reprivatisation process 2,693 M Financial Advisor 2011 Advisory in the sale of a stake in the capital of Advisory in the acquisition of a stake in the capital of Exchangeable Bonds due 2017 into Shares of Advisory in the sale to Telefónica of PT s stake in Petrogal Brasil US$ 4,800 M Financial Advisor 2011 Financial Advisor R$ 8,320 M th Privatisation Phase 885,650,00 Advisor & Bookrunner ,500 M Financial Advisor 2010 Source: CaixaBI For further information please visit or contact one of the following individuals: Paulo Oliveira Silva Ana Santos Martins Head of M&A Head of Equity Capital Markets paulo.oliveira@caixabi.pt ana.martins@caixabi.pt Banco de Investimento 2013 Guide to Portugal 5

8 Against the odds, CGD re-opens the Portuguese covered bond market Two 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 off 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 five-year 750 million, 3.75% coupon (mid-swap 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 Thanks to improved sentiment on EU debt, growing investor confidence 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 significant refinancing needs and benefiting from a very comfortable liquidity situation, CGD intended with these two transactions mainly to test market appetite and to wave the flag 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 significant 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 first 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 confirmed the same rating on all OH outstanding upon implementation of the Updated Rating European Covered Bonds methodology, published on 16 January Following this new issue and partial repayment of the first series, the total outstanding amount of securities under CGD s programme is 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. Investors Allocation. 500 million 3 year unsecured senior Allocation by geography Allocation by type of investor Spain, 5% Switzerland, 7% Benelux, 3% Middle East, 2% Insurance 4% Other 7% Germany & Austria, 7% Other, 8% UK, 34% Banks 23% Investment funds 66% Italy, 10% Portugal, 12% France, 12% Source: CGD

9 Investors Allocation. 750 million 5 year covered bonds Allocation by geography Allocation by type of investor Scandinavia 7% Other 6% Spain 10% Portugal 10% Private banks 2% Insurance 9% Other 2% Switzerland 11% UK 19% Germany & Austria 19% Banks 25% Investment funds 62% Andorra 1% Benelux 2% Italy 2% France 13% Source: CGD During the recent period of aggravated financial 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 first-ranking mortgages within the EU), the significant 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 Characteristics of Portuguese covered bonds Country of Issuance Portugal (Obrigações Hipotecárias) Type of Issuer Supervision Monitoring Location of assets Bond format Legal Framework / Bankruptcy of the issuer for covered bonds Universal credit institution / Specialised credit Institution Bank of Portugal and CMVM (Capital Market Regulator) Independent auditor must verify compliance with all legal and regulatory requirements as well as auditing collateral Directly on B/S of the issuer Typically, fixed rate, soft bullet, with the possibility to extend maturities by up to 12 months at the discretion of the issuer Specific legal framework superseding the general insolvency law Collateral Mortgage loans/ Public Sector Loans/Substitution assets (up to 20%) Non-performing collateral Geographical scope NPLs greater than 90 days must be removed from the cover pool 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 Protection against claims from other creditors in case of insolvency of the issuer Recourse to the issuer's insolvency estate upon a cover pool default Derivatives in the cover pool / ranking Fulfilling UCITS 22(4) criteria Yes Repo eligibility Yes Risk weighting 10% Not automatically, but the bondholders' meeting may decide to call the bonds Segregation from the general insolvency estate by law Yes, pari passu with unsecured creditors Yes, pari passu to covered bond holders 2013 Guide to Portugal 7

10 Market share in Portugal (as of June 2013) Corporate loans Deposits from customers 18.0% 17.5% 17.3% 17.6% 17.0% 27.5% 16.5% 16.4% 16.4% 16.0% 15.5% 15.5% 15.0% 14.8% 14.5% Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Jun 13 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 policy Better 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 financing operation (LTRO). In the first half of the year, CGD Group reduced its borrowing from the ECB by 2 billion to 6.45 billion. 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 diversification 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 different sources of funds for diversification purposes. Despite the very limited reliance on wholesale funding, diversification 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 flexible 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. No less important, strong collateral buffers 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 first priority to customer deposits, which in June 2013 contributed approximately 80% of total group funding needs. The wholesale funding redemption profile 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. 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 financial reference in Portugal Caixa is an institution whose mission and profile 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 financial 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.

11 In a difficult 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 different segments of its customer base. CGD is the largest financial 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 Since 1993 CGD has been a joint stock company with capital wholly held by the state. CGD is an integrated one-stop financial services group, active in classic banking business. Retail is its core activity, but it is also involved in insurance (ranking first 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 offices ) 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 profiles, Caixa forged stronger links with its customers as well as contributing to the optimization of costs in the profitability equilibrium. None of the Portuguese banks is as diversified 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. 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 first six months of Confirming 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 financial 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 financial margins, together with the still high volume of credit impairments (albeit on a recent downward trend) are visibly hitting Caixa s profitability, which has registered consolidated net losses since 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 significant balance sheet restructuring and embarked on an ambitious efficiency-driven operational transformation. 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 difficult 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 profitability turns positive. The second half of 2013 began with some signs of higher confidence 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 difficult 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 confidence of the Portuguese people. For further information please visit or contact the Investor Relations Office: investor.relations@cgd.pt Tel: Fax: Guide to Portugal 9

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