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VMOC. Mandatory convertible securities. This type of debt instrument cost Novo Banco 186 million euros between 2014 and 2018, the Deloitte audit concluded. Most of the losses are a legacy of Banco Espírito Santo (BES), but part of these VMOCs were subscribed at the end of 2014, already in the era of the Novo Banco.
The Novo Banco audit selected a sample of four VMOCs, related to two economic groups. “These assets were subscribed by BES (187.4 million euros in 2011) and by Novo Banco (24 million euros in 2014) in the framework of credit restructuring operations granted to clients, the proceeds of said subscription being mainly destined to the repayment of the debt that these clients had in BES / NB ”, explains the audit.
The document does not identify which economic groups, but one of them is Sporting: in 2014 Novo Banco subscribed 24 million euros in the Sporting SAD VMOC, within the framework of a debt restructuring of the Alvalade club, in which it also participated the BCP bank, another of the lion’s biggest creditors. The bonds bear interest as long as the company distributes dividends, over a period of 12 years, after which they are converted into shares of Sporting SAD.
Deloitte highlights that “these restructurings implied for BES and Novo Banco the substitution of debt for instruments convertible into equity, finding themselves in an unfavorable position vis-à-vis other creditors of clients that have not subscribed these instruments.”
The audit points to the lack of justification by BES and Novo Banco for the decision to subscribe to VMOC. “The documentation supporting the approval of operations does not include a detailed explanation of the factors that led BES (and Novo Banco in the case of the subscription of 24 million euros in 2014) to choose the option of using VMOC’s in restructuring” says Deloitte.
Of the 186 million euros lost by Novo Banco, the highest installments were recorded in 2016 (103.9 million euros) and 2017 (53 million euros).
The audit does not mention it, but in 2018 Sporting SAD reached a new agreement with Novo Banco and BCP to buy all the VMOCs within the respective term for a unit price of 30 cents, which will imply that León SAD must pay for the securities ( to prevent banks from becoming shareholders) a total of 40.5 million euros, instead of the 135 million that would have to be disbursed in the original conditions of the securities, whose issues date from 2011 and 2014.
