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London finance firm seeks to block Portugal Novo Banco sale
April 20, 2017 / 2:54 PM / 7 months ago

London finance firm seeks to block Portugal Novo Banco sale

* Aethel Partners wants to block sale to Lone Star

* London-based firm complained to central bank about process

* Aethel said sale should be relaunched

* Aethel move further complicates sale that is already in dispute

* EU says sale must be completed by August

By Sergio Goncalves

LISBON, April 20 (Reuters) - A failed bidder for Portugal’s third-largest lender Novo Banco has asked its lawyers to block the 1 billion euro ($1.08 billion) sale to U.S. fund Lone Star and told the central bank it should relaunch the bidding.

London-based financial firm Aethel Partners complained to the Bank of Portugal this week in a document viewed by Reuters. It said the central bank had not properly considered its 3.8 billion euro bid when it awarded Novo Banco to Lone Star last month.

European Union rules require Portugal to sell the bank by August or it may have to be liquidated. The move by Aethel threatens to further complicate a transaction that is already snagged on a separate legal dispute involving some of Novo Banco’s creditors.

The sale is one of the Socialist government’s biggest headaches and could impose costs on a country that made huge efforts to cut its budget deficit since the eurozone debt crisis when it had to be bailed out. “Aethel has already instructed its lawyers in Portugal to rapidly find a way to suspend the (sales) process and block the decision to sell Novo Banco to Lone Star,” a spokeswoman for Aethel told Reuters.

“The execution of these judicial proceedings (seeking information and documents) may lead to an injunction and then to an action to challenge the decision.”

The bondholders’ legal challenge also says the tender process did not follow correct procedures by banning them from taking part in the sale because they were in a legal battle with the country.

The Aethel spokeswoman said it would request information and documents from the central bank on the sales process.

A Bank of Portugal spokesman declined to comment on potential legal action by Aethel. A spokeswoman for Lone Star declined to comment on the challenge to the deal.

Novo Banco was carved out of Banco Espirito Santo, which collapsed under a pile of debt in 2014 and had to be rescued in a 4.9-billion-euro operation by the previous government. Novo Banco was left with the healthy operations of BES.

The current government has said it will not spend any taxpayers money on Novo Banco.

The European Union deadline was set under new rules designed to ensure governments did not end up owning rescued banks. The rules say that if the bank is not sold, it must be liquidated. A first attempt to sell it in 2015 failed as bids were too low.

The sale of Novo Banco already faces an injunction in a case filed by bondholders led by U.S. fund BlackRock that want to recover 1.5 billion euros of losses on Novo Banco bonds.

The bondholders asked a Lisbon court this month to stop the sale to put pressure on Portugal to pay them their losses. The court has yet to rule on the injunction request and has not publicly stated when it will hand down a decision.

If the sales process were to be relaunched, other firms could potentially enter the bidding, including Aethel.

Aethel had offered to pay 2.8 billion euros into the country’s bank resolution fund, the entity which formally owns Novo Banco, and make a 1 billion euro capital injection into the bank itself. In return, it wanted 91 percent of Novo Banco.

Instead, the central bank agreed to sell 75 percent of Novo Banco to Lone Star in return for a 1 billion euro capital injection into the bank.

Aethel Partners was established in 2014. It was founded by Ricardo Santos Silva, former deputy president of hedge fund Lyxor Asset Management, and Aba Rosa Schubert, who was previously a partner at Eton Park Capital Management, a hedge fund.

Since the rescue in 2014, Novo Banco has posted only one quarterly profit and remains lumbered by bad loans, debt and restructuring costs. ($1 = 0.9289 euros) (Reporting By Sergio Goncalves, writing by Axel Bugge, editing by Mark Bendeich and Anna Willard)

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