April 21, 2017 / 7:49 PM / 3 months ago

Portugal's Novo Banco sale to proceed; Lisbon set on cutting debt

WASHINGTON (Reuters) - Legal challenges are unlikely to stop the sale of Portugal's Novo Banco, the country's deputy finance minister Ricardo Mourinho Felix said on Friday, adding that the central bank was confident in the legitimacy of the process.

A failed bidder for the bank, which was carved out of collapsed Banco Espirito Santo in 2014, asked its lawyers this week to block the 1 billion euro ($1.08 billion) sale to U.S. fund Lone Star and said the Bank of Portugal should relaunch the bidding.

London-based financial firm Aethel Partners complained that the central bank had not properly considered its 3.8 billion euro bid when it awarded Novo Banco to Lone Star last month.

"I don't think that these risks of legal challenges may affect the timeline for the conclusion of the selling process," Mourinho Felix told Reuters in an interview on the sidelines of the International Monetary Fund and World Bank spring meetings.

"The process will not be stopped and there is enough legal certainty," he said.

Mourinho Felix also said that Portugal was determined to cut its budget deficit to 1.5 percent of GDP this year from 2.0 percent in 2016, with a further drop to 1.0 percent in 2018.

"We are very confident we will reach the target of a 1.5 percent deficit this year and 1.0 percent in 2018," Mourinho Felix said. "We are doing, and will do, whatever it takes to reach our targets.

He said Lisbon would continue to cut the deficit in order to bring down the country's public debt, which at around 130 percent of GDP is the third highest in the euro zone.

"Debt will continue to decline at a rate that is close to 2 percentage points per year. Of course, it will depend on the evolution of GDP and inflation and interest rates," Mourinho Felix said.

"Any decline in interest rates and in the cost of debt will be used to make it come down at a faster pace," he said.

Portugal has already asked that the euro zone bailout fund ESM allow it to repay loans from the International Monetary Fund ahead of ESM loans. IMF credit is much more expensive.

Mourinho Felix also forecast a rise in public investment in 2017 after it fell by around a quarter in 2016. He said the decline last year was due to delays in the preparation of projects co-funded by the European Union at a time when the EU was switching from one long-term budget to another.

"In late 2015 the processes of having public procedures was delayed. They were only prepared in the first half of 2016 and the investment will only materialize in early 2017, so we expect in 2017 to have a much stronger public investment," he said.

Reporting by Jan Strupczewski; Editing by Paul Simao

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