State could increase its share in Novo Banco

The Portuguese State is planning to become the second largest shareholder in Novobanco – the bank created in 2014 to hold the recoverable assets and deposits from Banco Espírito Santo which collapsed that same year.

It would mean that the State could have an even greater stake in the bank led by Mark Bourke than the Resolution Fund which has ensured its capitalisation for the past eight years. The other main shareholder is Lone Star, a US asset management and private equity fund which specialises in buying distressed assets and restructuring or repurposing them for onward sale.
It would involve a fresh tax conversion operation, the third in two years, worth €260 million and which could lead to the Portuguese treasury to reinforce the Republic’s stake by almost 13%.
The bank, according to the online news source ECO which broke the news, had just announced the right to acquire the conversion rights for asset from deferred taxes for the tax years 2018 and 2019 starting from March 6, 2023, and terminating on 20 March, 2023.
The capital increase will be approved as a result of this operation on 20 March when the bank’s general shareholders meet at their annual assembly when its yearly results for 2022 will also be signed off.
However, it is not yet a done and dusted deal. The Resolution Fund headed by Máximo dos Santos could prevent the State from increasing its capital share in the bank, but it is not expected to do so by buying up the conversion rights.
One the one hand the acquisition wold not be profitable: it would have to pay €260 million, more than it thinks they are worth; on the other hand it is in a financially fragile situation, so on that count alone it will likely not contest the State, thus paving the way for the Portuguese treasury to increase its stake in the bank which currently stands at 5.68%.
Although Novo Banco has so far not made any public statements about the capital share increase, the State’s share would likely increase to around 12.82%.
The capital increase would effectively represent the public funds ploughed into the bank by the Portuguese State as a result of its negative results between 2015-2019.
The final shareholdings in the bank would therefore be Lone Star (75%), the Resolution Fund (12.18%) and the Portuguese State (12.82%).