Lack of bank loans has created a funding gap that is now being plugged by venture capital
In Portugal, demand for finance still outstrips supply. Companies struggle to obtain loans from the banks, meaning businesses must look elsewhere for sources of funding.
“The gap left by the banks not providing loans has been large and the last eight months or so we have increasingly seen private equity firms and funds step in to help,” explains Nuno Azevedo Neves, partner at ABBC. “They have provided a little bit of everything to support refinancings, restructurings as well as venture capital.”
Azevedo Neves says venture capital is especially important. Any money the banks have been lending was used for refinancings or restructurings, which is effectively recycling existing money. However, venture capital provides new financing. Firms and funds have plenty of liquidity, meaning investments are often made on a cash basis. Consequently, highly-leveraged financings are coming to an end and a new age of longer-term investment is emerging.
“The privatisation programme in Portugal boosted confidence and, while these assets cannot be disposed of for a number of years, private equity investors are now taking interest – not just in distressed assets, looking for a quick turnaround and exit, but instead focusing on better assets,” Azevedo Neves continues. “This is encouraging because financings are focusing much more on the returns of the specific business rather than picking up good deals for a cheap price.”
The private capital is coming from Iberian investors, as well as firms and funds in places such as the US and China. But will it encourage banks to lend? “That is a tough question as the banks still face issues such as recognition of impairments and capitalisation requirements,” Azevedo Neves says. “They will continue to be active in the refinancing arena but most of the new capital will probably come from other sources.”