In every economic downturn there are inevitably winners and losers. Espírito Santo Investment, winner of the 2009 World Finance Award for best investment bank in Portugal, is one of today’s winners. “How many banks remained liquid and continued lending throughout this latest global economic crisis?” asks Executive Vice-Chairman Rafael Valverde. “How many institutions, following the collapse of Lehman Brothers and the international liquidity crisis, would have gone ahead with plans to open a branch of their investment bank in New York City?”
Although the Portuguese banking system is subject to the same liquidity constraints as everyone else, it was largely untouched by the major shocks that caused many banks around the world to collapse or significantly rewrite their balance sheets. “Portugal is a net importer of capital,” explains Paulo Martins, head of Corporate Finance. “As such, our banks really did not have the incentive to take on some of the toxic assets that caused problems for other banking communities. As a result, we maintained a solid balance sheet and have kept on lending to our customers throughout the crisis.”
And there are deals to be done. While other banking communities have seen a decline of 50 to 60 percent in the available deal flow, Espírito Santo in Portugal has experienced only a 30 percent decline. Paulo Martins attributes this in part to the relative isolation of the slow-growing Portuguese economy, which was immune to much of the financial crises that hit international markets. Now that the dust is settling in markets like neighbouring Spain, the devaluation of assets in those countries is tempting Portuguese investors to pick up some bargains. “I would think we will have a period of around two years when Portuguese companies can get involved in opportunities outside our country that prior to the collapse they couldn’t afford,” he comments.
Many of these deals come to Espírito Santo, which has built competitive advantages in its domestic market by developing a distribution footprint that is very similar to the presence that major Portuguese clients have internationally. “The Portuguese market is too small for the large international investment banks to sustain a presence, so there was a clear opportunity for a local bank to build an international platform that would support Portuguese business activities,” says Paulo Martins. Working with local clients, Espírito Santo now has a larger presence in Spain and Brazil than any other Portuguese investment bank, and is building its platform in Poland, Angola, the UK and New York as its clients look to become more involved in these geographic areas.
Espírito Santo has also built a solid position in capital markets within its domestic arena, and is extending it throughout its growing international distribution platform. The bank has participated in all the major privatisations in Portugal and led most of the recent IPOs and takeovers in that country. It has also led most of the Eurobonds issued by Portuguese companies. “Our strong position in the local market means that we know better than the big international banks what is going on inside these companies,” comments Luís Luna Vaz, head of Capital Markets.
“With this competitive advantage we are able to support our clients as they expand internationally. We have also built strong research teams in the Iberian and Brazilian markets, and are using our strength in this area to increase our penetration rate into the developing markets.”
Project finance
“When the world economic crisis hit, the infrastructure markets survived reasonably well,” comments Nigel Purse, the bank’s head of Project Finance. “People still need to travel on roads, drink clean water, have electricity to power their homes and access to hospitals when they are ill. So investment in these infrastructure projects has continued, particularly as many governments respond to recessionary pressures by undertaking public work projects as a way of stimulating their economies.”
Inevitably, by the beginning of 2009 the value and volume of project activity slowed significantly, but for the Espírito Santo Project Finance team there have been some interesting opportunities. “As a result of the world banking crisis, there are now fewer banks in the infrastructure finance market space and liquidity is at a premium,” Purse points out. “Those banks that have built up a proven expertise and maintained their liquidity are finding themselves at the receiving end of a lot of phone calls.”
As a result, the team has a pipeline of well over 100 transactions, the strongest pipeline it has ever had in its target areas of transport, power and energy, and general infrastructure. Unlike the capital market and corporate finance activities of the bank, the project finance team is not constrained by geography, with a current asset book of project finance loans in 18 different countries, and advisory activities in several more.
Surprisingly, given the size of the projects and the long term investment requirements, infrastructure finance can be a highly faddish area of activity which requires a nimble approach. “Over the last three or four years we have developed a considerable reputation in renewable energy financing because there has been a lot of technological development coming out of Portugal and Spain in that area,” says Purse. “But now we’re starting to see a lot more projects coming up in conventional power, such as developing natural resource facilities in the Gulf and gas storage capabilities in the energy importing states of Europe.”
Strength through experience
The recent crisis in the global banking community has not only thrown up interesting opportunities for those institutions that maintained a healthy balance sheets, it has also made clients place a significant premium on trust, reliability and deliverability. In Portugal, Espírito Santo’s focus on building strong client relationships through being focused, flexible and reliable has put it in a strong position. “If we think we cannot do something, we openly say so,” says Executive Vice-Chairman, Rafael Valverde. “That gives our clients trust, which is a key part of the relationship that enables us to grow with them in their international activities.”
With access to the majority of the major corporate finance and capital market transactions in Portugal comes the opportunity to work alongside the top international banks. “This gives us solid experience and great credentials to market in the international arena,” notes Paulo Martins. “It gives us the ability to go to any international corporate and present good ideas and experience as part of a group of banks that can deliver success.”
Ironically, it is the economic experience of its home country that may throw up some of the bank’s most exciting growth opportunities in the future. “Portugal and Spain had a pretty unique experience when they joined the EU in 1986,” explains Rafael Valverde. “Our development was not comparable with the larger economies like France and Germany, so we had the challenge of managing five percent growth per year for nearly a decade. This experience can be of value to businesses operating in or moving into the new EU countries in eastern Europe, and both our clients and the bank itself see this as a major growth area.”
For further information tel: + 351 21 319 69 16; email: psantos@besinv.pt;
www.esinvestment.com
