March 31, 2017 / 5:23 PM / 10 months ago

Portugal sells Novo Banco to Lone Star for 1 bln-euro capital injection

LISBON, March 31 (Reuters) - Portugal has agreed to sell a 75 percent stake in state-rescued lender Novo Banco to U.S. private equity firm Lone Star in exchange for a capital injection of 1 billion euros into the institution, the Bank of Portugal said on Friday.

“The sale is an important step for stability of the banking system,” Bank of Portugal Gov. Carlos Costa told reporters. “The agreement allows to meet the deadline set jointly with the European Commission for the sale of Novo Banco.”

Portugal’s Bank Resolution Fund will retain the remaining 25 percent stake in Novo Banco, which is the bridge bank carved out of Banco Espirito Santo, which crumbled in 2014. The country injected 4.9 billion euros, mostly via the resolution fund, into the ‘good bank’.

Under the terms of the deal, Lone Star will inject 750 million euros when the deal is formally closed and another 250 million within three years.

Also, Novo Banco will swap 500 million euros of senior bonds for new bonds as means to reinforce its common equity Tier 1 capital ratio before Lone Star takes over the bank.

The Bank of Portugal said a contingent capital mechanism will be set up to meet potential capital needs at the bank worth up to 3.89 billion euros, explaining that the mechanism did not represent any guarantee to cover any losses. (Reporting By Sergio Goncalves, writing by Andrei Khalip, editing by Axel Bugge)

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