Portugal's second attempt to sell off Novo Banco SA will likely be successful, but it will come at a price, with analysts expecting the winning bidder to get a significant discount.

There are five bidders in the running for the Portuguese bank, which was created in 2014 as the "good bank" of Banco Espirito Santo Group after the latter's collapse. China Minsheng Financial Holding, private equity firm Lone Star and a joint bid from U.S. funds Apollo Global Management LLC and Centerbridge Partners LP are reportedly leading the race, while Portugal's largest and second-largest listed banks, Millennium BCP and Banco BPI SA, are also interested.

The Portuguese state tried to sell Novo Banco last year, but that attempt failed when all of the offers came in below the €4.9 billion of state aid plowed into the bank in 2014. The best offer came from China's Anbang Insurance Group Co. Ltd. at €3.5 billion, a price that would have represented a €1.4 billion loss for the Portuguese resolution fund.

But analysts told S&P Global Market Intelligence that it was very unlikely that the Portuguese government would recoup all the money it pumped into the lender.

"They want to sell the bank, but they will have to sell the bank at a very low price. There is no other way," Fincor analyst Albino Oliveira said in an interview.

Difficult task

Since its creation, Novo Banco has been posting losses as it deals with bad loans, including a net loss of €980.6 million in 2015 on the back of more than €1 billion in provisions. Despite posting a small profit in the third quarter, it lost €359 million during the first nine months of 2016, with provisions for the period totaling €762.6 million.

The bank has embarked on a wide restructuring plan, cutting staff and branches as it seeks to reduce costs. Yet its current financial situation will make it difficult to find investors willing to pay a premium for a significant stake in the lender.

"I don't expect any material inflows into Novo Banco — an investor is not going to pay a lot of money for this," said a Lisbon-based analyst, who asked not to be named.

Joao Lampreia, equity analyst at Banco de Investimento Global, estimated that the bank was worth just about half of publicly traded Millennium BCP, which currently has a market capitalization of just above €1 billion. "[Novo Banco] is basically quite worthless," he said.

There are also risks stemming from legal action by a group of asset managers against the Portuguese central bank over heavy losses on nearly €2 billion of Novo Banco bonds, the Lisbon-based analyst said. The central bank moved bonds from Novo Banco to Banco Espírito Santo late last year, leading to a sharp write-down in their value.

Different scenario

But selling the bank to investment funds may not be the best option, according to Oliveira.

"The Portuguese banking sector needs consolidation," he said. "If it were acquired by BCP or BPI, this would be the best scenario. But it will probably be a Chinese player, therefore the market will not consolidate."

BCP and BPI are reportedly the least interested in the bank. BPI is in the process of being taken over by Spain's CaixaBank SA, which is not in favor of BPI's interest in Novo Banco, according to Bloomberg.

Press reports have suggested that the Chinese bid is the most attractive one, and Economia Online reported that a memorandum of understanding has already been signed but that negotiations will not move forward unless a legal declaration stating the group's financing capacity is presented.

Whatever happens, the bank has to be sold by August 2017 to comply with European Union rules.

"I think there's a 50-50 chance that the bank will be sold, but in any case it has to be sold by the end of the second quarter," Lampreia said. "That's when the guarantees from the resolution fund end, so they need to deal with it."