November 28, 2017 / 4:03 PM / a year ago

BlackRock, Pimco and others boycott BCP bond

LONDON, Nov 28 (IFR) - Two of the world’s biggest fixed income investors, BlackRock and Pimco, have decided to boycott an issue of Tier 2 bonds by Banco Comercial Portugues, which is due to price tomorrow, as a protest against the Portuguese authorities’ treatment of Novo Banco bondholders.

The two institutions are also joined by four smaller fund managers, Attestor Capital, CQS, River Birch Capital and York Capital. All have individually decided not to invest in the new issue by BCP, which was seeking to raise €300m.

“We will not be participating in this issuance. We have each decided that the risks associated with actively investing in Portuguese public or private debt are prohibitive, as the Banco de Portugal still has not addressed the unlawful and discriminatory retransfer of notes from Novo Banco to Banco Espirito Santo in 2015,” the six institutions said in a joint statement.

BCP has felt unable to issue senior debt as Portugal has not yet set out legal details of its version of non-preferred senior debt, the new class of loss-absorbing capital that eurozone banks are required to issue.

Instead banks headquartered in the country have generally had to issue more junior classes of debt this year, sometimes at more prohibitive rates. For example state-owned Caixa Geral de Depositos priced a €500m perpetual non-call five Additional Tier 1 at 10.75% in March.

It is unclear if issues such as this were also affected by a lack of demand from the above institutions. However, the dispute over Novo Banco goes back to late December 2015, when five bonds held mainly by international funds were transferred back to Banco Espirito Santo.

BES failed in August 2014 and Portuguese authorities chose to set up Novo Banco to contain assets and certain liabilities of the bank it wished to save only to re-categorise them 16 months later, just before the new rules under the Bank Recovery and Resolution Directive came in.

The institutions have strenuously objected to being singled out for this treatment and sought to have their bonds reinstated as Novo Banco instruments. Three-quarters of the instruments have since been sold by Portugal to US private equity investor Lone Star.

The six institutions are part of the group, advised by London law firm Clifford Chance, that has challenged the Bank of Portugal’s decision. There are several other lawsuits also being pursued relating to Novo Banco.

“We look forward to resuming our discussions with the Portuguese authorities in order to resolve the situation quickly and re-establish Portugal as a credible destination for foreign investment,” their statement said.

Portuguese banks have been active this year, pricing €4.25bn of debt compared with nothing in 2016. BCP itself repaid €700m of state CoCos early in February after completing a €1.33bn rights issue. It has also issued its first euro covered bond since 2009.

Novo Banco’s new owner has said the bank plans to issue a €400m Tier 2 note of its own. (Reporting by Christopher Spink)

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