* ESI with irregularities related to debt instruments
* Planned capital hike worth 1 bln euros in Rioforte, IPO possible
* Insurance unit may sell stake to partner (Adds insurance company, debt outstanding, details)
By Sergio Goncalves
LISBON, May 23 (Reuters) - 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 finances.
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 organisational structure.
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 Sophie Walker)