Espirito Santo Sells Property Loans to Private Equity Funds

Banco Espirito Santo SA, Portugal’s biggest publicly traded bank, is selling some loans from companies in the real estate and tourism industries that are at risk of insolvency to private-equity funds.

“The goal is always to turn around these companies,” Antonio Souto, a board member at Banco Espirito Santo, said in an interview on Feb. 20. “This is something that is working quite well as otherwise these businesses would simply become insolvent and would be totally liquidated.”

ECS Capital and Explorer Investments SCR SA are among private-equity funds that have acquired loans owed to Portuguese banks by companies in the tourism and real estate industries, Souto said. Espirito Santo and other Portuguese lenders are shareholders in some of these funds, he said.

Portuguese tourism companies, which relied heavily on the sale of real estate assets to repay their debts, suffered from a loss of investor confidence in the aftermath of the collapse of the Lehman Brothers Holdings Inc. and after Portugal requested a bailout in 2011, Souto said.

“What happened is that property sales, which used to be enough to pay the debt owed by these companies, suddenly disappeared,” he said. Today, these loans are often sold at a “significant discount” to these funds, which are managed in a “completely autonomous” way, he added.

An official at Portuguese lender Banif SGPS SA, said it has also sold loans to funds.

Antonio de Sousa, the former president of the Association of Portuguese Banks, is one of the board members of ECS Capital, which has more than 1 billion euros ($1.3 billion) under management, according to the fund’s website. ECS Capital and Explorer weren’t immediately available for comment.

Souto said he doesn’t see a conflict of interest for banks selling these type of loans to funds in which they hold stakes.

“In fact, this solution has even been praised by our colleagues in Spain that would have liked to develop solutions of this nature,” Souto said. He declined to say how much debt the bank has sold to funds.

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