Novo Banco: Xaia Investments says investing in Portugal is “a real mess”

The German fund Xaia Investments is waiting to get to know the final terms of the purchase offer for Novo Banco’s bonds in order to decide what to do concerning their 100 million euros’ equity debt in the bank. Jochen Felsenheimer, the fund’s director, told ECO the success of the operation “will depend on the final terms of the deposits” Novo Banco will make available to creditors.

The German Fund holds 100 million euros in senior bonds from BES / Novo Banco, although it is not authorized to disclose their exact position. To ECO, Jochen Felsenheimer brought forward that he did try contact the Investor Relation department, but to no avail. “I understand that this was probably too early and they did not want to provide private information, which I fully understand”, the director highlights.

Even so, Xaia Investment will only make a decision when they are fully aware of what the operation entails. Novo Banco aims to purchase bonds in exchange for cash, with several levels of discount. The bank is also telling creditors that they can secure the cash they receive in an interest-bearing deposit. Felsenheimer believes this is the key to the success of the operation aiming to reinforce NB’s capital by at least 500 million euros.

“My understanding so far is that the ‘treat’ for the trade might come come from the possibility to tender into the term deposits”, Xaia’s director stated. “After getting in touch with some investors, my very personal impression is that the level of the cash tender is very disappointing, and hence, the chance to get the whole deal done is depending on the deposit terms“, he emphasized. So far, what is known is that each term deposit will earn interests at three to five year maturities, depending on the bond series.

My understanding so far is that the ‘treat’ for the trade might come come from the possibility to tender into the term deposits.

“In the case you get a coupon which over time compensates you for the discount of the tender offer and finally you get paid ‘par’ (i.e. the sum of the tender offer plus all received coupons in the term deposits) in some years time, economically, it is nothing else than a maturity extension (in combination with a haircut)“, Felsenheimer explains. The deposits option is aimed at retail clients: according to sources from the market, around 40% of the bondholders are retail clients.

Although he is disappointed with the losses the fund may suffer with the investment in Novo Banco’s bonds, Felsenheimer tries to minimize the scenario: “I really like Portugal, I like the people very much, and I even like Sagres beer… but investing in Portugal is sometimes a real mess”.

"I really like Portugal, I like the people very much, and I even like Sagres beer… but investing in Portugal is sometimes a real mess.”