Novo Banco: proposal to shareholders will be made in July

  • ECO News
  • 22 June 2017

Novo Banco's shareholders will have to wait a few more weeks if they want to get to know the bond exchange operation proposal, much needed to go through with the bank's sale to Lone Star.

António Ramalho should only present the Liability Management Exercise (LME) to Novo Banco’s shareholders at best in the end of June, but it will most likely happen in the beginning of July. This operation is worth 500 million euros in the bank’s capital ratios and it is a necessary condition to close the deal with Lone Star.

The LME operation was announced on March 31st in parallel with the sale agreement to the North-American fund. On that day, PM António Costa and Finance minister Mário Centeno announced the need to assure a capital reinforcement in Novo Banco through a senior bond exchange operation which needs to have a positive impact of 500 million euros. However, since that day, no proposal has been presented neither to funds or privates, who now hold around three billion euros worth of bonds.

Formally, it is Novo Banco which must present the LME proposal, but in this case the Bank of Portugal, the Resolution Fund and the Finance Minister also have to be involved: at stake is also Portugal’s relationship with international funds which are also investors in the Portuguese public debt. In addition, the decision to re-transfer NB senior bonds worth 2.2 billion euros to BES, the bad bank, triggered a serious conflict with these investors — and some of them are the same which now have to negotiate this LME.

Concluding the sale to Lone Star does not only depends on this operation — commended by Brussels , because it involves a burden sharing principle in NB’s capitalization effort –, but also depends on the approvals from ECB and DGComp. The green light should only come on August 3, the deadline for the sale.