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OFFICIAL CORRECTION-UPDATE 1-Bondholders seek to block Novo Banco sale over bond transfers
April 11, 2017 / 12:37 PM / 7 months ago

OFFICIAL CORRECTION-UPDATE 1-Bondholders seek to block Novo Banco sale over bond transfers

(Removes Pimco from lead after correction from bondholder group spokesman)

* Novo Banco sold to U.S. private equity firm in March deal

* Bondholders say bank sale breached public tender rules

* Central bank says does not comment on legal proceedings

LISBON, April 11 (Reuters) - Bondholders led by U.S. fund Blackrock have filed an injunction to block the sale of Portugal’s Novo Banco over the central bank’s transfer of bonds worth 2.2 billion euros ($2.33 billion) to a bank for bad loans, the group said on Tuesday.

The transfer in 2015 of the bonds from Novo Banco to Banco Espirito Santo, which was turned into “bad bank” after it collapsed in 2014, led to losses for bondholders of around 1.5 billion euros, the group said in a statement.

Portugal agreed in March to sell Novo Banco to U.S. private equity firm Lone Star in exchange for a 1 billion euro capital injection.

A spokesman for the bondholders said an injunction was filed on Sunday to a Lisbon court against the sale of Novo Banco.

The group said in a statement it had launched the action because of “discriminatory and prejudicial action” by the Bank of Portugal, or central bank.

It said the sale process “breached the applicable rules of public tenders,” including preventing members of the group bidding because they had challenged the bond transfer.

“The Bank of Portugal changed the rules during the course of the tender process, which allowed Lone Star to benefit from a number of conditions that were not offered to other potential bidders,” the statement added.

A spokesman for the central bank said it did not comment on legal proceedings while they were ongoing. Officials at the Finance Ministry were not immediately available to comment.

Banco Espirito Santo collapsed in 2014 under the debts of its founding family.

The state injected 4.9 billion euros to rescue the bank and transferred the main operations to a new institution, Novo Banco. Banco Espirito Santo was left holding the bad debts.

The central bank’s decision in 2015 to transfer bonds from Novo Banco, a move that boosted its capital ratios, raised protests from bondholders at the time.

In its statement, the bondholders said the group included Blackrock and others who had been “large and long-term financial partners of the Portuguese government, financial institutions and corporates.”

The Bank of Portugal “continues to disregard the law and the most basic principles of market economy, to the detriment of the reputation of the Portuguese republic,” the group said.

$1 = 0.9425 euros Reporting By Sergio Goncalves and Axel Bugge; Editing by Edmund Blair

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