The favorite for the acquisition of Novo Banco fails assurances

The deadline for the sale of Novo Banco ends in the end of 2016, but the operation may be jeopardized. Why? The main contender for the acquisition – Minsheng – has already signed the memorandum of understanding for its minority position at Novo Banco, but it has not yet presented the so called ‘proof of sufficient funds’ – meaning, the legal declaration that they have the financial means to perform such operation.

According to several sources contacted by ECO, Minsheng Financial is struggling to assure they have the necessary means to subscribe capital on the terms proposed and it should have communicated that both to Bank of Portugal and Sérgio Monteiro. China is imposing restrictions on capital outflows and that should be pressuring Minsheng’s ability to prove they have the funds to purchase the majority of capital from Novo Banco.

Another source familiar with the process told ECO that, aside from this restriction, there is the belief that with these conditions, the manager of Minsheng who is handling the process is not authorized by his Board, in Shanghai, to complete the operation. A possible alternative would be a bridge-loan from international financial entities that may be available to overcome these issues. But even that bridge-loan has its conditions, namely of interests, that make it practically unviable. Another alternative would be an operation in which Minsheng makes a down-payment – of 100 million euros – and pushes to the future the remaining capital increase.

The Lone Star fund, on the other hand, has presented a 350 million euros proposal for Novo Banco to be paid to the Resolution Fund, and the availability to perform the capital increase according to the needs identified by the Bank of Portugal. But Lone Star has a very specific interest, the so called ‘side bank’, which includes the real estate and other non-core assets from Novo Banco, valued at eight billion euros. However, it requires a guarantee from the State to assure they will not be at loss with the sale of those assets at a lower value than the eight billion. Besides, the State’s guarantee would also have advantages for the fund in the assessment of Novo Banco’s needs of capital increase. But this is a condition perceived as unacceptable economically, financially and even politically; therefore, the proposal is unviable.

According to other sources – unofficial –, the Apollo fund, along with Centerbridge, had clearly fallen behind on this short-list of candidates, but should have made a last-ditch effort and, in spite of having made a financial offer lower than Lone Star’s, in their proposal they admit to keep the Resolution Fund as Novo Banco’s shareholder and do not require the previously mentioned public guarantee.