LISBON, April 12 Portugal's finance minister
said on Wednesday he was confident the sale of Novo Banco will
go ahead despite the prospect of further losses for bondholders
in a debt swap, which is part of the sale agreement with U.S.
fund Lone Star.
The sale of Novo Banco, which was carved out of Banco
Espirito Santo (BES) in Portugal's biggest ever bank failure in
2014, is encountering increasing headwinds as bondholders who
faced earlier losses have challenged the operation in the
Portugal has until August to sell Novo Banco, the country's
third largest bank, or it could face liquidation under an
agreement with Brussels.
The central bank and the government reached an agreement
last month with Lone Star to sell Novo Banco, but the deal falls
short of recovering 4.9 billion euros ($5.2 bln) injected in the
rescue operation of BES in 2014. In that rescue, Novo Banco was
left with the healthy operations of BES, which became a 'bad
bank' for the debts that led to its collapse.
Novo Banco is now owned by the country's bank resolution
fund, which is funded by all banks operating in Portugal.
"It's true that the talks involving the Resolution Fund and
the buyer are still on, and we have every expectation that the
deal will be concluded," Finance Minister Mario Centeno told
Under the terms of the deal with Lone Star, Novo Banco will
first have to swap 500 million euros of senior bonds for new
bonds to reinforce its common equity Tier 1 capital ratio.
"Losses for bondholders is one of the pieces of the deal
that the Bank of Portugal reached with Lone Star," Centeno said,
adding that the swap will be a voluntary exchange and is aimed
at preserving Novo Banco.
Last week Moody's Investor Service said that any debt
exchange announced in the sale of Novo Banco would be seen as
distressed. The ratings agency downgraded Novo Banco senior debt
one notch to Caa2, implying very high credit risk.
This week bondholders led by U.S. fund BlackRock
filed an injunction to block the sale over a prior, 2015
decision by the country's central bank to transfer 2.2 billion
euros to a bank for bad loans, which has already led to losses
for bondholders of 1.5 billion euros.
($1 = 0.9427 euros)
(Reporting By Sergio Goncalves, writing by Andrei Khalip,
editing by Axel Bugge and Susan Fenton)