D Day for Novo Banco? It might just be a false start

This Friday was supposed to be the first D day for Novo Banco (NB) in their attempt to reinforce their capital cushion by 500 million euros. Small and larger investors in the transition bank had a bondholders’ General Assembly (GA) scheduled for today’s morning, aiming to decide whether or not to accept the debt exchange offer — a key condition to perform the sale of NB to Lone Star. But we might need to wait for a second D day in the end of the month, since it is likely there won’t be a quorum: ECO knows the group of larger investors will not be attending the GA, showing their resistance and possibly pushing the decision closer to the final deadline for the acceptance of the offer.

“The price is low”, “prices are not fair”, “it was a political decision”. These were some of the reactions from Pimco, Ever Capital Investments and Xaia Investments — Novo Banco’s largest investors — to the proposal presented to senior bondholders in July. There will not be an exchange of bonds for other bonds less valuable (or which have a smaller coupon), but an exchange for cash. The same is to say that those who hold NB’s debt will receive cash in exchange for those bonds they hold, which were assessed at market price, lower than what investors expected to receive.

In order for the exchange offer to move forward, a request operation for consenting an early reimbursement has to be made. And it is all in the hands of these investors, which hold the majority of NB’s securities. When asked by ECO if they will accept the offer, Pimco did not give an answer, while the Spanish from Ever preferred not to make any comments about the stance they will take in the GA. As for Xaia Investments, its director Jochen Felsenheimer told ECO they will “not take part in the GA”, adding they “don’t believe there is enough quorum” for the voting.

Smaller investors, on the other hand, are beginning to accept Novo Banco’s offer — representing 43% of the overall amount to be exchanged. More than 1,900 clients who invested in commercial paper sold by the bad bank Banco Espírito Santo (BES), corresponding to 97% of the overall amount, have accepted the mechanism which will partly compensate them for the losses suffered from the bank’s liquidation. Clients who take part in the solution will be able to recover 75% of the amount they invested, in a maximum of 250 thousand euros, if they have investments up to 500 thousand euros. Former emigrant clients from BES also took part in this solution.

All in all, Novo Banco aims to repurchase 36 debt lines for their market value, and each line must be voted by investors. In order for there to be a quorum to validate the voting, it would be necessary that investors representing more than 66% of the amount in those lines were present in the GA. ECO knows there aren’t enough investors in the meeting, meaning the decision will most likely be postponed for the next GA, on September 29, “with a minimum quorum of a third”, as Novo Banco explained. After that, the acceptance period will only end on the second of October.