* ESI with irregularities related to debt instruments
* Planned capital hike worth 1 bln euros in Rioforte, IPO
* Insurance unit may sell stake to partner
(Adds insurance company, debt outstanding, details)
By Sergio Goncalves
LISBON, May 23 Espirito Santo International
(ESI), a major shareholder in Portugal's largest listed bank BES
, plans asset sales and a 1 billion-euro ($1.37 billion)
capital hike at one of its holdings, Rioforte, to repair its
Auditors recently found irregularities at ESI, according to
BES, which is in the process of launching its own billion-euro
rights issue and acknowledged in the prospectus that ESI's
problems could represent a reputational risk for it too because
it had sold ESI debt products to its own clients
A spokesman for the Espirito Santo Group conglomerate that
owns the Luxembourg-based ESI, told Reuters that ESI would seek
a capital increase at Rioforte in the next two or three months,
that would be open to outside investors.
The capital hike could later be followed by an initial
public offering in Rioforte, which has consolidated assets of
2.84 billion euros and is part of the group's complex
Rioforte also indirectly owns a 49 percent stake in the
group's financial holding company, Espirito Santo Financial
Group (ESFG) , which in its turn is the
leading shareholder in Banco Espirito Santo. France's Credit
Agricole is another major shareholder in BES.
Aside from its 27.5 percent stake in BES, ESFG also holds
control of insurance company Tranquilidade.
The spokesman said that in addition to the planned asset
sales, ESFG "may team up with an international partner for it to
take a stake in Tranquilidade", adding that several companies
had demonstrated interest in the unit.
All these measures by ESI and the group should repair the
problem, he said.
Ratings agency Standard & Poor's on Wednesday improved its
outlook on BES to stable from negative and reaffirmed its BB-/B
credit ratings, taking into acount the capital increase that
will improve the bank's solvency.
In its rights issue prospectus, BES said the amount of ESI
debt, issued in the form of instruments like commercial paper,
diminished to 959 million euros as of May 19 from over 3 billion
euros at the end of 2013 after repayments, and that ESI has a
restructuring and deleveraging programme under way.
ESFG, the guarantor of ESI debt, has already made provisions
worth 700 million euros related to that debt.
Shares in BES have slumped since it announced the capital
increase. They fell another 2 percent on Friday due to
uncertainty about investor appetite for the rights issue.
(Writing by Andrei Khalip; Editing by Erica Billingham and