Obligation Neo Banco 3.5% ( XS0861577301 ) en USD

Neo Banco

100 % ▲

Portugal

XS0861577301 ( en USD )

3.5% par an ( paiement semestriel )

06/12/2015 - Obligation échue

Prospectus brochure de l'obligation Novo Banco XS0861577301 en USD 3.5%, échue

200 000 USD

450 000 000 USD

Novo Banco est une banque portugaise créée en 2014 à la suite de la résolution de Banco Espírito Santo.

L'Obligation émise par Neo Banco ( Portugal ) , en USD, avec le code ISIN XS0861577301, paye un coupon de 3.5% par an.
Le paiement des coupons est semestriel et la maturité de l'Obligation est le 06/12/2015

Listing Particulars dated 4 February 2013

BES Finance Ltd.
(incorporated with limited liability in the Cayman Islands)
U.S$450,000,000

3.50 per cent. Guaranteed Exchangeable Bonds due 2015
exchangeable into the common shares of Banco Bradesco S.A.
(incorporated under the laws of Brazil),
unconditionally and irrevocably guaranteed by
Banco Espírito Santo, S.A.
(incorporated with limited liability in Portugal)
(acting through its London branch)
Issue Price: 100.00 per cent.
The U.S.$450,000,000 3.50 per cent. Guaranteed Exchangeable Bonds due 2015 (the Bonds) were issued by BES
Finance Ltd. (the Issuer) on 6 December 2012 (the Closing Date) at an issue price of 100.00 per cent. of their principal amount
(the Issue Price). The payments of all amounts owing in respect of the Bonds will be unconditionally and irrevocably
guaranteed by Banco Espírito Santo, S.A., acting through its London Branch (the Guarantor) pursuant to the Trust Deed (as
defined herein).
Unless previously exchanged, redeemed or purchased and cancelled, the Bonds will be redeemed by the Issuer on 6
December 2015 (the Maturity Date) at 100.00 per cent. of their principal amount. The Bonds are subject to redemption at the
option of the Issuer, in whole but not in part only, at their principal amount, together with interest accrued to the date of
redemption, at any time if 85 per cent. or more in aggregate principal amount of the Bonds issued have been exchanged,
redeemed or purchased and cancelled. In addition, the Issuer may, at its option, redeem all, but not some only, of the Bonds at
any time at their principal amount, together with any interest accrued to the date of redemption, in the event of certain tax
changes. See "Terms and Conditions of the Bonds Redemption and Purchase".
The Bonds bear interest from (and including) 6 December 2012 at the rate of 3.50 per cent. per annum payable semi-
annually in arrear on 6 June and 6 December in each year, commencing on 6 June 2013. Payments on the Bonds shall be
made in U.S. dollars without deduction or withholding for or on account of any Portuguese or Cayman Islands taxes unless
required by law. In the event that any such deduction or withholding is required by law, the Issuer or the Guarantor, as the case
may be, will pay additional amounts in respect thereof, subject to certain exceptions as described herein. See "Terms and
Conditions of the Bonds Taxation".
Subject to the Bondholders' right to make, and the Issuer's right to accept in the circumstances described herein, a
Physical Settlement Election (as defined herein), Exchange Rights in the Bonds will be satisfied by the Issuer by payment of
the Cash Amount (as defined herein) in exchange for the Bonds at any time on or after 16 January 2013 and up to the close
of business on the seventh São Paulo Business Day prior to the Maturity Date or, if such Bond shall have been called for
redemption prior to the Maturity Date, then prior to the close of business on the seventh São Paulo Business Day prior to the
date fixed for redemption thereof. Exchange Rights in respect of which a Physical Settlement Election is effective will be
satisfied by the transfer and delivery to the relevant Bondholder of a pro rata share of the Exchange Property (as defined herein
and which shall initially comprise common shares in Banco Bradesco S.A. (the Bradesco Shares)), which shall be subject to

adjustment pursuant to the Terms and Conditions of the Bonds. See "Terms and Conditions of the Bonds Exchange Right".
The Bradesco Shares are listed on the official list of the São Paulo Stock Exchange and are admitted to trading on the São
Paulo Stock Exchange (Bovespa). On 31 January 2013, the closing price of the Bradesco Shares on the São Paulo Stock
Exchange (Bovespa) was BRL 35.39 per Bradesco Share.
These Listing Particulars have been prepared for the purposes of admission of the Bonds to the official list of the

Luxembourg Stock Exchange and to trading on the Luxembourg Stock Exchange's Euro MTF Market (the Euro MTF Market)
and may be used solely for the purposes for which they have been published.
These Listing Particulars constitute a prospectus for the purposes of the Luxembourg Act dated 10 July 2005 relating to
prospectuses for Securities, as amended.
An investment in the Bonds involves certain risks. See "Risk Factors" commencing on page 9 for a discussion of
certain factors that should be carefully considered by investors.
None of the Bonds, the Guarantee or the Bradesco Shares to be delivered upon exchange of the Bonds have been or will
be registered under the United States Securities Act of 1933, as amended (the Securities Act) or with any securities regulatory
authority of any other jurisdiction. The Bonds have been offered and sold in offshore transactions outside the United States in
reliance on Regulation S (Regulation S) under the Securities Act and, except in a transaction exempt from the registration
requirements of the Securities Act, may not be offered, sold or delivered within the United States or to or for the benefit of U.S.
persons.
The Bonds are initially in the form of a registered global bond (the Global Bond), without interest coupons, which was

deposited with and registered in the name of, a nominee for Euroclear Bank S.A./N.V. (Euroclear) and Clearstream
Banking, socíeté anonyme (Clearstream, Luxembourg) on the Closing Date. The Global Bond will be exchangeable for
definitive registered Bonds, without interest coupons, in the denomination of U.S.$200,000 and integral multiples of
U.S.$100,000 in excess thereof, only in the limited circumstances set out therein.
Each of the Issuer and the Guarantor accepts responsibility for the information contained in these Listing Particulars with
respect to the Issuer, the Guarantor, the BES Group (as defined below) and the Bonds, and, to the best of the knowledge of the
Issuer and the Guarantor (each having taken all reasonable care to ensure that such is the case), such information is in accordance
with the facts and does not omit anything likely to affect the import of such information.
These Listing Particulars were not prepared in connection with the offering of the Bonds and none of the Lead Managers (as
defined below) was involved in the preparation of, or has reviewed or made any investigation or enquiry with respect to, these
Listing Particulars. No representation or warranty, express or implied, is made by any of the Lead Managers as to the accuracy,
completeness or sufficiency of the information set out or incorporated in these Listing Particulars.
These Listing Particulars should be read and construed with any documents incorporated herein by reference, see
"Documents Incorporated by Reference". These Listing Particulars do not constitute an offer of, or an invitation by or on behalf of
the Issuer or the Guarantor to subscribe for or purchase any of the Bonds or the Bradesco Shares. Information incorporated by
reference in these Listing Particulars relating to Banco Bradesco S.A. (Bradesco) and its subsidiaries and subsidiary undertakings
taken as a whole (the Bradesco Group) and the Bradesco Shares and the information contained under paragraph 12 of the section
"General Information" (such information, the Bradesco Information) comprises and is extracted from documents which are all
publicly available. Such documents were not prepared in connection with the offering of the Bonds and none of the Issuer or the
Guarantor has made any investigation or enquiry with respect to such documents or the Bradesco Information. None of the Issuer
or the Guarantor accepts responsibility for the Bradesco Information. The incorporation by reference of the Bradesco Information
shall not create any implication that there has been no change relating to Bradesco, the Bradesco Group or the Bradesco Shares
since the date thereof or that the information contained therein is current as at any time subsequent to its date. None of the Issuer
or the Guarantor has had access to Bradesco's books, records or other non-public information. Therefore, information concerning
Bradesco, the Bradesco Group or the Bradesco Shares that has not been made public is not available to the Issuer or the Guarantor.
None of the Issuer or the Guarantor has been involved in the preparation of the Bradesco Information and, for the foregoing
reasons, none of the Issuer or the Guarantor is in a position to verify any such information or pass judgement on its completeness.
None of the Issuer or the Guarantor makes any representations or warranties as to the accuracy, completeness or sufficiency of the
Bradesco Information.
Bradesco has not participated in the preparation of these Listing Particulars or in establishing the terms of the Bonds.
Consequently, there can be no assurance that all events occurring prior to the date hereof (including events that would affect the
accuracy or completeness of the publicly available documents referred to above or the Bradesco Information) that would affect the
trading price of the Bradesco Shares (and, therefore, the trading price of the Bonds) have been publicly disclosed. Subsequent
disclosure of any such events or the disclosure of, or failure to disclose, material future events concerning Bradesco, the Bradesco
Group and the Bradesco Shares could affect the trading price of the Bradesco Shares and, consequently, affect the value of the
Cash Amount payable upon exchange of the Bonds or the value of the Exchange Property deliverable upon exchange of the
Bonds, as the case may be, and, therefore, the trading price of the Bonds.
No person is authorised to give any information or to make any representation not contained in these Listing Particulars and
any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Issuer
or the Guarantor. Neither the delivery of these Listing Particulars nor any offer, sale or delivery made in connection with the issue
of the Bonds shall, under any circumstance, constitute a representation that there has been no change or development likely to
involve a change in the condition (financial or otherwise) of the Issuer, the Guarantor or the BES Group since the date hereof or
create any implication that the information contained herein is correct as of any date subsequent to the date hereof or the date as of
which that information is stated herein to be given.
Neither the Issuer nor the Guarantor is providing any advice or recommendation in these Listing Particulars on the merits of
the purchase, subscription for or investment in the Bonds or the Bradesco Shares or the exercise of any rights conferred by the
Bonds or the Bradesco Shares.
These Listing Particulars (including the information incorporated by reference herein) are not intended to provide the basis
of any credit or other evaluation and should not be considered as a recommendation by the Issuer, the Guarantor or the Trustee that
any recipient of these Listing Particulars should purchase the Bonds. Each potential purchaser of Bonds should determine for itself
the relevance of the information set out or incorporated by reference in these Listing Particulars and its purchase of Bonds should
be based upon such investigations as it deems necessary.
Unless otherwise specified or the context requires, references to (i) dollar, Dollar, U.S. dollars and U.S.$ refer to the
lawful currency of the United States of America, (ii) BRL refers to the lawful currency of Brazil, (iii) EUR, Euro, euro and
refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty
establishing the European Community, as amended, and (iv) BES Group means the Guarantor and its consolidated subsidiaries.
2

TABLE OF CONTENTS
DOCUMENTS INCORPORATED BY REFERENCE ................................................................. 4
RISK FACTORS ............................................................................................................................ 9
TERMS AND CONDITIONS OF THE BONDS ........................................................................ 26
SUMMARY OF PROVISIONS RELATING TO THE BONDS IN GLOBAL FORM.............. 51
USE OF PROCEEDS ................................................................................................................... 53
TAXATION.................................................................................................................................. 54
GENERAL INFORMATION ....................................................................................................... 61

3

DOCUMENTS INCORPORATED BY REFERENCE

Each document incorporated herein by reference is current only as at the date of such document, and the
incorporation by reference of such documents shall not create any implication that there has been no change in the
affairs of the Issuer, the Guarantor, the BES Group or Bradesco, as the case may be, since the date thereof or
that the information contained therein is current as at any time subsequent to its date. Any statement contained
therein shall be deemed to be modified or superseded for the purposes of these Listing Particulars to the extent that
a subsequent statement contained herein modifies or supersedes that statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to constitute a part of these Listing Particulars.

Furthermore, in relation to the Form 20-F (as defined below) of Bradesco, the Issuer and the Guarantor were
not involved in the preparation of such information and are not in a position to verify any such information. The
Issuer and the Guarantor do not make any representations or warranties as to the accuracy, completeness or
sufficiency of such information and nothing contained herein is, or shall be relied upon as, a representation or
warranty of such information.

The documents set out below are incorporated herein by reference:

(a) The following sections of the 20,000,000,000 Euro Medium Term Note Programme Prospectus of the
Issuer and the Guarantor dated 29 May 2012 (the Programme Offering Circular):
(i)
BES Finance Ltd. (pages 221 to 227), which includes:
-
the date of incorporation and legislation under which the Issuer operates (page 221);
-
a description of the Issuer's position within the BES Group (page 221); and
-
a description of the Issuer's principal activities and services (page 221); and
(ii)
Banco Espírito Santo, S.A. and BES Group (pages 227 to 300), which includes:
-
the date of incorporation and legislation under which the Guarantor operates (page 227);
-
a description of the BES group and the Guarantor's position within it (pages 247 to 249);
and
-
a description of the Guarantor's principal activities, products and services (pages 231 to
246).
(b) The unaudited consolidated and non-consolidated interim financial statements of the Guarantor for the
nine months ended 30 September 2012, as set out on pages 47-191 and the management report as set
out on pages 3-46, of the Guarantor's 2012 interim report, including:
(i)
statements of income (pages 48, 50, 52 and 53);
(ii)
balance sheet (pages 47, 49 and 54);
(iii) statement of changes in equity (page 55);
(iv)
cashflow statements (page 56);
(v)
accounting policies and explanatory notes (pages 57-191);
(vi)
the amount of issued share capital, number and classes of securities and their principal
characteristics (pages 149-153);
(vii) the amount of any debt securities convertible or exchangeable into the share capital of the
Guarantor (pages 149-153 which should be read in conjunction with page 242 of the Guarantor's
4

2011 annual report referred to at paragraph (c) below); and
(viii) information concerning the recent developments and prospects of the Guarantor (pages 3-46).
(c) The auditors' report and audited consolidated and non-consolidated annual financial statements of the
Guarantor for the financial year ended 31 December 2011, as set out on pages 98-203 of the
Guarantor's 2011 annual report, including:
(i)
statements of income (pages 100, 101, 127 and 128);
(ii)
balance sheet (pages 102, 129 and 130);
(iii) statement of changes in equity (page 103);
(iv)
cashflow statements (page 104);
(v)
accounting policies and explanatory notes (pages 105-199); and
(vi)
auditors' report (pages 200-202).
(d) The auditors' report and audited consolidated and non-consolidated annual financial statements of the
Guarantor for the financial year ended 31 December 2010, as set out on pages 78-191 of the
Guarantor's 2010 annual report, including:
(i)
statements of income (pages 79, 81, 92 and 93);
(ii)
balance sheet (pages 78, 80 and 94);
(iii) statement of changes in equity (page 95);
(iv)
cashflow statements (page 96);
(v)
accounting policies and explanatory notes (pages 97-187); and
(vi)
auditors' report (page 190).
(e) The unaudited non-consolidated interim financial statements of the Issuer for the six months ended 30
June 2012, as set out on pages 2 to 34 of the Issuer's 2012 interim report and the introductory
management report thereto, including:
(i)
statements of income (pages 2 and 3);
(ii)
balance sheet (page 4);
(iii) statement of changes in equity (page 5);
(iv)
cashflow statements (page 6);
(v)
accounting policies and explanatory notes (pages 7-34);
(ix)
the amount of issued share capital, number and classes of securities and their principal
characteristics (pages 32-33);
(x)
the amount of any debt securities convertible or exchangeable into the share capital of the Issuer
(pages 32-33); and
(xi)
information concerning the recent developments and prospects of the Issuer (introductory
management report).
5

(f) The auditors' report and audited non-consolidated annual financial statements of the Issuer for the
financial year ended 31 December 2011, as set out in the Issuer's financial statements and notes to the
financial statements for the years ended 31 December 2011 and 2010, including:
(i)
income statement (pages 2 and 3);
(ii)
balance sheet (page 4);
(iii) statement of changes in equity (page 5);
(iv)
cashflow statements (page 6);
(v)
accounting policies and explanatory notes (pages 7 to 44); and
(vi)
auditors' report (pages 45 and 46).
(g) The auditors' report and audited non-consolidated annual financial statements of the Issuer for the
financial year ended 31 December 2010, as set out in the Issuer's financial statements and notes to the
financial statements for the years ended 31 December 2010 and 2009, including:
(i)
income statement (pages 2 and 3);
(ii)
balance sheet (page 4);
(iii) statement of changes in equity (page 5);
(iv)
cashflow statements (page 6);
(v)
accounting policies and explanatory notes (pages 7 to 50); and
(vi)
auditors' report (pages 51 and 52).
(h) The report on Form 20-F dated 30 April 2012 filed by Bradesco with the United States Securities and
Exchange Commission (SEC) (Form 20-F), including:
(i)
the auditors' report and audited consolidated annual financial statements of Bradesco for the
financial year ended 31 December 2011, as set out on pages F-3 and F-5 to F-136 of Form 20-F,
which includes:
-
statements of income (pages F-5 and F-6);
-
balance sheet (page F-7);
-
statement of changes in equity (pages F-8 and F-9);
-
cashflow statements (pages F-10 and F-11);
-
accounting policies and explanatory notes (pages F-12 to F-136); and
-
auditors' report (page F-3);
(ii)
the auditors' report and audited consolidated annual financial statements of Bradesco for the
financial year ended 31 December 2010, as set out on pages F-4 to F-136 of Form 20-F, which
includes:
-
statements of income (pages F-5 and F-6);
-
balance sheet (page F-7);
6

-
statement of changes in equity (pages F-8 and F-9);
-
cashflow statements (pages F-10 and F-11);
-
accounting policies and explanatory notes (pages F-12 to F-136); and
-
auditors' report (page F-4);
(iii) a description of the Bradesco Shares and the rights attached thereto, as set out on pages 187 to
195 and pages F-124 to F-125 of Form 20-F, which includes information regarding:
-
the rights attached to Bradesco Shares (pages 189 to 192 and 194);
-
the form and transfer of Bradesco Shares (page 192);
-
shareholder meetings (page 188); and
-
dividends and distributions (pages 187-188); and
(iv)
information on Bradesco and its capital, as set out on pages 9 to 203 and pages F-124 to F-125 of
Form 20-F, which includes:
-
the amount of issued capital, number and classes of securities and details of their principal
characteristics (pages 184 to 192 and pages F-124 to F-125);
-
the amount of any debt securities convertible or exchangeable into the share capital of
Bradesco (page 9 and pages F-124 to F-125);
-
a description of the Bradesco group and Bradesco's position within it (pages 22 to 25); and
-
a description of Bradesco's principal activities, products and services (pages 27 to 28 and
pages 37 to 120).
(i) The (I) reports on Form 6-K filed by Bradesco with the SEC dated 4 May, 11 May, 21 May, 1 June, 11
June, 27 June, 29 June, 11 July, 23 July, 30 July, 13 August, 23 August, 12 September, 19 September,
10 October, 17 October, 22 October, 23 October, 26 October (Q3 Form 6-K), 9 November, 19
November, 28 November, 10 December, 11 December, 18 December and 26 December 2012 and 11
January 2013 and (II) reports on Form 6-K/A filed by Bradesco with the SEC dated 29 May, 28 June,
18 July, 16 August, 23 October, 5 November and 28 December 2012, which include the auditors' report
and audited consolidated interim financial statements of Bradesco for the nine months ended 30
September 2012, as set out on pages 106-205 and 207 of the Q3 Form 6-K and the press release set out
on pages 5 to 30 of the Q3 Form 6-K, including:
(i)
statements of income (page 110);
(ii)
balance sheet (pages 106-109);
(iii)
statement of changes in equity (page 111);
(iv)
value added statement (page 112);
(v)
cashflow statements (page 113);
(vi)
accounting policies and explanatory notes (pages 114-205);
(vii) auditors' report (page 207); and
7

(viii) information concerning the recent developments and prospects of Bradesco (pages 5-30).

All information included in the 2011 and 2010 Annual Reports of the Issuer and the Guarantor, but not
expressly identified above, is provided for information purposes only.

Documents incorporated by reference into these Listing Particulars under paragraph (a) to (g) inclusive
above will, for so long as any Bonds are outstanding, be available free of charge at the specified offices of the
Paying, Transfer and Exchange Agents (as defined herein) and at the registered offices of the Issuer and the
Guarantor. Documents incorporated by reference under paragraph (h) to (i) inclusive above should be available on
the SEC website (http://www.sec.gov).

In addition, documents incorporated by reference into these Listing Particulars under paragraph (a) to (i)
inclusive above will be published on the Luxembourg Stock Exchange's web site (www.bourse.lu).
8

RISK FACTORS

The Issuer and the Guarantor believe that the following factors may affect their ability to fulfil their
respective obligations under the Bonds. Most of these factors are contingencies which may or may not occur and
neither the Issuer nor the Guarantor is in a position to express a view on the likelihood of any such contingency
occurring.

Factors which the Issuer and the Guarantor believe may be material for the purpose of assessing the market
risks associated with the Bonds are also described below.

The Issuer and the Guarantor believe that the factors described below represent the principal risks inherent
in investing in the Bonds, but neither the Issuer nor the Guarantor represents that the statements below
regarding the risks of holding any Bonds are exhaustive. Prospective investors should also read the detailed
information set out elsewhere in these Listing Particulars (including any documents deemed to be incorporated
by reference herein) and reach their own views prior to making any investment decision.

Terms used below but not defined shall have the meanings set out under "Terms and Conditions of the
Bonds".

Risk Factors Relating to the Issuer

1
Factors that may affect the Issuer's ability to fulfil its obligations under the Bonds

The Issuer is a funding vehicle of the BES Group. As such it raises funds to the Guarantor by way of intra-
group loans. In the event that the Guarantor fails to make a payment under an intra-group loan, the Issuer
may not be able to meet its payment obligations under the Bonds. The Issuer reported a negative net income
of EUR 141,062,807 for the financial year ended 31 December 2011 compared to a positive net income of
EUR 40,120,931 for the financial year ended 31 December 2010. The negative net income for the 2011
period resulted primarily from an increase in losses from foreign exchange differences and an increase in
other operating expense. For the half yearly period ended 30 June 2012 (as reported in the unaudited non-
consolidated interim financial statements of the Issuer for the six months ended 30 June 2012), the Issuer
reported a positive net income of EUR 10,621,345. To the extent that the Issuer's earnings and profitability
are adversely affected in the future, this may negatively affect the Issuer's operational results and financial
condition.
Risks Factors Relating to the Guarantor

2
Factors that may affect the Guarantor's ability to fulfil its obligations under the Bonds

2.1 Economic environment

As a financial group whose core business is banking (taking deposits and using them to grant loans) in
Portugal, the state of the Portuguese economy affects the performance of the BES Group. For the year ended
31 December 2011, 74 per cent. of the BES Group's net assets and 50.9 per cent. of operating income
derived from its activities in Portugal (as at and for the year ended 31 December 2010: 73 per cent. and 61.7
per cent., respectively). Consequently, the BES Group is particularly exposed to the macroeconomic
conditions which affect growth, particularly in the Portuguese market.
Portugal's gross domestic product (GDP) stagnated in 2008, experienced a contraction of 2.9 per cent. in
2009 and grew 1.9 per cent. in 2010. In 2010, the Portuguese public deficit represented 9.8 per cent. of
Portugal's GDP and national public debt amounted to 93.4 per cent. of GDP. Unemployment grew from 9.5
per cent. in 2009 to 10.8 per cent. at the end of 2010.
As a result of deteriorating economic conditions, the Portuguese government requested financial assistance
from the Member States of the European Union (the EU) through the European Financial Stability Facility
(the EFSF) and the International Monetary Fund (the IMF) in April 2011. On 5 May 2011, the Portuguese
government, with the support of the main Portuguese political parties, agreed to an economic and financial
stabilisation programme jointly provided by the IMF and the EU (the Stabilisation Programme). The
Stabilisation Programme is expected to provide significant financial support of 78 billion over a three-year
period in the form of a co-operative package of IMF and EU funding, including a 26 billion three-year loan
under the IMF's extended fund facility, with the remaining 52 billion in funding being provided by the EU
9

at an interest rate expected to be between 3.5 per cent. and 4 per cent. On 10 May 2011, the European
Commission approved the Stabilisation Programme and, on 16 May 2011, EU finance ministers approved
the Stabilisation Programme. The availability of the funding is dependent on the implementation of
budgetary and structural measures by the Portuguese government, which will be subject to quarterly reviews
by the EU and the IMF for the duration of the Stabilisation Programme.
As part of the Stabilisation Programme, the Portuguese government has committed to implement measures
to decrease expenses and increase revenues that, subject to certain assumptions, were intended to reduce the
general government deficit to a level of approximately 5.9 per cent. of GDP in 2011, to approximately 5.0
per cent. of GDP in 2012 and approximately 3.0 per cent. of GDP in 2013.
In addition, the Stabilisation Programme aims to put the Portuguese public debt to GDP ratio on a downward
path from 2013 and maintain fiscal consolidation over the medium-term up to a balanced budgetary position,
mainly by containing growth in expenditure and by supporting competitiveness through a budget-neutral
adjustment to the tax structure. The Stabilisation Programme contains structural measures and policy
guidelines designed to boost the country's competitiveness and improve Portugal's growth rates in the
medium term with a view to repaying the country's large debt burden. Specifically, the Stabilisation
Programme includes, among other things, measures intended to:
increase revenues, in part through the increase of tax rates for goods and services;
improve the flexibility of the labour market;
reduce the level of pensions for certain government employees; and
improve the competitiveness of the Portuguese economy.

The implementation of the required measures is subject to the continued commitment of the Portuguese
government. Changes in the government or government policy, including as a result of rescue plans
elsewhere in Europe, could have an impact on the timing and scope of the structural reforms that Portugal
has to implement in order to meet the conditions of the Stabilisation Programme. Furthermore,
implementation of these structural reforms may meet considerable opposition from labour unions and the
general public in Portugal, which could put pressure on the Portuguese government's ability to meet the
requirements of such measures in the future. In addition, European politics (including national elections in
EU Member States) may affect the availability of funding for Portugal and other European countries.
The outlook for the Portuguese economy is conditioned by the implementation of the Stabilisation
Programme. The need to reach a public deficit of 4.5 per cent. of GDP in 2012, as initially projected,
translated into the adoption of a very restrictive fiscal policy, with negative impacts on economic activity in
the near term. At the same time, the private sector corporate, financial and households continues its
deleveraging process. Under these circumstances, GDP is expected by the Portuguese Government to
decrease approximately 3.0 per cent. in 2012, after having contracted 1.6 per cent. in 2011 (source:
Portuguese Ministry of Finance). This is mainly associated with a significant contraction in domestic
demand, of around 10 per cent. in real and accumulated terms in these two years (source: Portuguese
Ministry of Finance). Albeit slowing down, exports have posted strong growths while imports have fallen
significantly, in line with internal demand.
The State Budget for 2012 submitted by the Portuguese Government reaffirmed the fiscal target established
in the Memorandum of Understanding agreed with the International Monetary Fund, European Commission
and European Central Bank (the Troika). The detection of deviations from the target for 2011 (deficit of 5.9
per cent. of GDP) has resulted in the need of extraordinary and non-recurring corrective measures. Detected
deviations derived from several factors, principally a lower than expected decrease in compensation of
public employees, non-tax revenues that were lower than the target (for example, dividends), one-off
expenses relating to the privatisation of Banco Português de Negócios and the re-classification and
integration of two public companies of the Autonomous Region of Madeira into the general public accounts
of the Portuguese government. The announced corrective measures (which were agreed with the Troika)
include an extraordinary surtax (equivalent to 50 per cent. of the Christmas bonus), a rise in VAT on gas and
electricity invoices from 6 per cent. to 23 per cent. in October 2011 and the transfer of the banking sector
pension funds to the Portuguese national social security regime. With the adoption of those measures, the
final Government deficit in 2011 reached 4.4 per cent. of GDP.
Since no extraordinary measures could be used in 2012, the Portuguese Government announced a series of
additional more permanent measures to reduce public deficit. Amongst these are: (i) a decrease in
compensation of employees, achieved mainly by suspending public servants' Christmas and holiday pay; (ii)
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