A new Dawn for the Portuguese Stock Market?

Law no. 99–A/2021 of 31 December 2021, which will come into effect 30 days after its publication date, will amend a number of Portuguese laws and regulations, including the Securities Code. 

Investors have been calling for a reform of the Portuguese Securities Code for more than a decade. The upcoming reform will provide a better legal framework to attract capital and many of the changes have the potential to improve the Portuguese stock market. Allowing listed companies to have multiple voting shares is one of the most significant features of the law reform, which has been rightfully praised for potentially helping to make the Portuguese stock market a friendlier destination for investors. 

The scope of the law reform could have been wider and the changes could have been more ambitious.  All too often, law reform proposals fall short and the upcoming reform of the Portuguese Securities Code is no exception. It remains to be seen whether the changes will be sufficient to counter the Portuguese stock market’s deepening slowdown, but the law reform is certainly welcome. The most significant amendments made by the new law to the Portuguese Securities Code are described below. 

I. Highlights of the Reform 

• ‘Open-ended’ companies (sociedade aberta) will no longer exist as a corporate form. As there is almost no equivalent in other European jurisdictions, this corporate form generates unnecessary complexity and legal uncertainty. Portuguese capital markets legislation will therefore now only revolve around listed companies.
• Portuguese companies that issue shares admitted to trading on a regulated market or in a multilateral trading system will be permitted to issue multiple voting shares, up to a limit of 5 votes per share. 
• The threshold of 2% of voting rights to disclose qualified shareholdings will be removed to attract investment from those who wish to acquire stakes of less than 5% without the burden of increased monitoring and disclosure duties. 
• The rules for taking part in shareholder meetings will be simplified to encourage shareholder engagement in listed companies. In particular, shareholders will only be required to notify the financial intermediary of their intention to take part in a shareholders meeting; it will no longer be required to serve notice on the chairman of the board. 
• The minimum prospectus exemption threshold will be increased from EUR 5M to EUR 8M.
• Underwriting by financial intermediaries will no longer be mandatory in public offers. 
• The new law removes an ambiguous requirement that a competing bid could not be submitted ‘on less favourable terms’ than a preceding offer (although the consideration of a competing bid must still be at least 2% higher than the preceding offer). 
• All shares subject to a takeover bid may be acquired on a compulsory basis if the bidder and its associates hold at least 90% of the voting rights attaching to the company's share capital (a second threshold of 90% of the voting rights attaching to the shares that the bidder offered to acquire under the bid need no longer be met).
• The exemption from the duty to launch a mandatory offer where proof is provided that there is no control over the listed company will be admissible regardless of the percentage of voting rights held. In addition, acquisitions made due to death (mortis causa) shall not trigger a duty to launch a mandatory offer provided that the articles of association set out which acquisitions are caught in this regard.
• Rules on the amendment of bids will offer greater flexibility. The bidder may amend the terms and conditions of the offer up until two days before the end of the offer period provided that the revised offer is not less favourable overall for the addressees.

II. Impact of Law no. 99–A/2021 on the Portuguese Stock Market

The Portuguese stock market has been in steady decline over the past 15 years. Too many de-listings, too few IPOs, the scant presence of institutional investors, an economy that relies heavily on bank debt and a very limited proportion of Portuguese investing directly in stocks or with pensions invested in shares have created a downward spiral  that shows no signs of stopping.

With that unsettling backdrop, a reform was certainly needed. The stated purpose of the upcoming amendments to the Portuguese Securities Code is ambitious: to develop and increase the competitiveness of the Portuguese capital markets, primarily by simplifying and reducing regulatory costs and barriers, aligning Portuguese capital market rules and regulations with other European jurisdictions, and eliminating ‘gold–plating’.

If a statement of intent for the New Year were sufficient to achieve the intended goals, the Portuguese stock market would be off to a good start. However, good intentions are not enough to get the job done and the legal reform ought to have been more ambitious.

Multiple voting shares are a case in point. It is hardly surprising that the Portuguese Government has finally decided to allow them as it has become abundantly clear in recent decades that many of the theoretical underpinnings of the one–share–one–vote principle do not hold water. 

Multiple voting shares are permitted in a number of European jurisdictions and are widely used across the pond, where they have been a significant fixture on the US capital markets for many years. In light of the fierce competition between legal systems that pervades the global economy, the admissibility in Portugal of multiple voting shares is certainly good news. But the reform has been too timid by limiting the votes–per–share to 5, which is unlikely to persuade founders to take Portuguese companies public instead of using foreign companies of jurisdictions where multiple voting shares are subject to barely any restrictions whatsoever. The Portuguese government might well have missed an opportunity to put Portuguese listed companies firmly on the map as a truly attractive option for IPOs in sectors where founders want to take their companies public, but are disinclined to relinquish control. 

The Portuguese Stock Market is in dire need of a stimulus and only time will tell whether the upcoming amendments to the Portuguese Securities Code will succeed in reviving it. The amendments to current provisions fall short in some respects, although the changes are fundamentally positive. As a result, the reform brought about by Law no. 99–A/2021 of 31 December 2021 might not herald the new dawn for the Portuguese stock market that many had been hoping for, but it is nevertheless a step in the right direction.

David Oliveira Festas is a Partner in the law firm CS’Associados.

Francisco Albuquerque Reis is an Associate in the law firm CS’Associados.