US private equity firm Lone Star is closer to taking control of Portugal's Novo Banco with an offer to inject up to 1 billion euros ($1.07 billion) into the bank in return for a 75 percent stake, sources told Reuters.
Lone Star had initially sought to take control of all of the state-owned bank's capital as well as requesting a state guarantee covering up to 2.5 billion euros in potential losses on its non-performing assets and assets slated for sale.
Although Lisbon is desperate to offload Novo Banco, which it rescued in 2014, the government turned down Lone Star's initial offer as it refused to provide any guarantees. The proposal envisaged an immediate 750 million euro injection plus 750 million at a later stage.
"Under a new agreement that is being finalised and is likely to be sealed this month, Lone Star will inject 1 billion euros of capital into the bank, giving them a 75 per cent ownership, while the remaining 25 percent should stay with the (Portuguese) resolution fund," one of the sources told Reuters.
The bidding price itself "is almost irrelevant as the main action will be the 1 billion euro capital injection".
Portugal injected 4.9 billion euros in Novo Banco, which was carved out of Banco Espirito Santo, which collapsed under a mountain of debt built up by its founding family.
The money was injected via the country's bank resolution fund, meaning that it is the common responsibility of all banks operating in Portugal, who have to foot the bill for any difference between the rescue funds and the selling price.
Last year, the government agreed to extend the maturities of the loan to the resolution fund for as long as needed so as to guarantee that banks keep paying what they currently pay in fund contributions regardless of the final Novo Banco deal.
The finance ministry and Bank of Portugal officials declined to comment. Lone Star also declined to comment. Finance Minister Mario Centeno said last week the sale of Novo Banco should be concluded in coming weeks. Aside from the Portuguese authorities, the negotiations now involve the European Central Bank and the European Commission, particularly Directorate-General for Competition.
"The negotiations with DG Comp are intensive and evolving well," another source familiar with the talks said.
Under the revised offer, Lone Star has no firm obligation to inject further capital in Novo Banco, but one of the sources said they may possibly inject more capital at a later stage, "as any shareholder looking after their investment would do".
Both sources said that Lone Star is negotiating with some Portuguese entities, who could take 5 to 10 pct of Novo Banco, lowering Lone Star’s investment by that amount, to help Lone Star understand the Portuguese market and manage relationships with various local players.
One of the sources said talks with Brussels were needed to specify where to park the remaining 25 per cent stake - the resolution fund or some public entity - while avoiding any impact on public accounts or competition in the banking sector.
The 25 per cent stake should later be sold off to private investors, to meet Portugal's commitments taken at the time of the rescue to fully offload its stake in the bank....