Chinese amongst favorites to buy Portugal’s Novo Banco

Chinese companies that have applied to acquire Portugal’s Novo Banco (NB), which inherited the “healthy” assets of the beleaguered Banco Espírito Santo, are considered favorite’s for the deal, which may be the largest ever involving Chinese investors in Portugal.
Carlos Costa, Governor of the Bank of Portugal, confirmed last week that seven companies had put forward non-binding proposals for the acquisition of Novo Banco, half of the total that had initially expressed interest in the acquisition and which had been accepted by the financial sector regulator (15).
Among them are, according to the Portuguese press, three strong Chinese candidates: Fosun, which recently bought the largest Portuguese insurer (Fidelidade), Angang Insurance and the Bank of China.
Among the analysts who have followed the process is João Rendeiro, former president of former bank BPP, who believes that one of the three Chinese competitors will buy Novo Banco, paying at least 5.2 billion euros.
Speaking to Portuguese weekly newspaper Expresso, Rendeiro noted that the ratio of market capitalization to book value recorded in the Iberian banks, yields a value of over 5 billion euros and that “lower than this amount would be a bad deal.”
Novo Banco has advantages, he said, “the cleanest balance sheet of all, reflecting all impairments and the lower exposure to housing loans amongst Portuguese banks,” as well as the, “best commercial machine in the Portuguese banking markets and the ideal platform for entry into the European banking system.”
Of the three, he considers the strongest candidate to be Fosun, which is already considered the largest Chinese investor in Portugal following the acquisition of insurer Fidelidade, hospital healthcare network Espírito Santo Saúde, as well as significant holdings in companies such as power grid manager Redes Elétricas Nacionais – REN. At the stage of binding proposals its is believed that Fosun may partner other Chinese candidates.
Rendeiro’s estimate for the value of Novo Banco would be above what was invested by the Portuguese banking sector’s Resolution Fund, managed by the Bank of Portugal, which prevented the collapse of BES.
Other analysts, such as lawyer and influential politician Marques Mendes, point to a value of around 4.5 billion euros. An important factor in the final price will be the risk of litigation which may be taken on by the buyer, as the former BES has creditors totalling billions of euros, which the Bank of Portugal has referred to Novo Banco.
Without protection against future lawsuits, just as BESI investment bank was sold to the China’s Haitong International, it is believed that the price of Novo Banco will be substantially lower.
The other candidates to buy the bank include Spain’s Santander and Banco Popular, as well as Portugal’s BPI and US fund Apollo.
Upon delivery of the non-binding proposals, the Bank of Portugal will choose four or five candidates to proceed to the next stage, with rounds of direct negotiations and binding prices and the process is expected to be concluded by August.
The deal may be the largest ever involving Chinese investors in Portugal, beating the privatization of 21.35 percent in power company EDP, in December 2011, whereby China Three Gorges paid 2.69 billion euros, pledging also to invest 2 billion euros in EDP’s renewable energy projects by 2015.
Portugal was the fourth country in Europe to receive the most Chinese investment in the last decade, ahead of much larger economies such as Spain or even Italy, according to a comparative study by the Rhodium consultancy, prepared for law firm Baker & McKenzie.
Since 2000, the study noted, the UK has been by far the largest investment destination –
USD16 billion – followed by Germany (US$8.4 billion), France (US$6.7 billion) and Portugal (US$6.7 billion). Some analysts have pointed to higher amounts invested by Chinese investors in Portugal, in the order of US$10 billion. MDT/Macauhub