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REFILE-Forgive and forget? Novo Banco plans €400m Tier 2 issue
October 12, 2017 / 4:10 PM / 2 months ago

REFILE-Forgive and forget? Novo Banco plans €400m Tier 2 issue

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By Alice Gledhill

LONDON, Oct 12 (IFR) - Novo Banco is planning to raise €400m of Tier 2 capital in the market, which would be its first bond issue since a rescue package was agreed earlier this year.

The planned issuance came to light in a statement from the European Commission as it approved Portuguese aid for the sale of Novo Banco on Wednesday, completing the resolution of Banco Espirito Santo which collapsed under a mountain of bad debts in 2014.

Novo Banco is being sold by the Portuguese Resolution Fund to US investor Lone Star, which is planning to inject €1bn of capital in the bank and an in-depth restructuring of the institution.

In addition, Novo Banco is hoping to raise €400m of Tier 2 capital instruments. The timing of the issue is unclear and the Bank of Portugal did not respond to a request for comment. Lone Star declined to comment.

The bank will need to win over fixed income investors, some of whom are still smarting from the decision in late 2015 to transfer several securities back from Novo Banco to BES, resulting in their value being written down.

The Tier 2 issuance recalls the recapitalisation of Portuguese peer, Caixa Geral de Depositos. The bank issued €500m of Additional Tier 1 debt in March, proving it had access to the private market after receiving a capital injection from the government.

If the Tier 2 transaction cannot be completed successfully from private means, the Portuguese Resolution Fund - which will retain a 25% stake in the bank - will put up the €400m.

That would be offset against its €3.89bn commitment to inject capital should Novo Banco’s capital ratio fall below a threshold due to losses on a legacy asset portfolio.

The EC’s approval emerged a week after the completion of a liability management exercise designed to generate capital and another part of the terms agreed with Lone Star.

The bank was forced to waive the minimum participation condition after the final results showed just €4.74bn, or 56.6%, of the €8.37bn targeted had accepted the deal. The bank claimed it hit its €500m target via capital gains and interest savings, according to CreditSights. (Reporting by Alice Gledhill, editing by Helene Durand, Sudip Roy)

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