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Portugal to flesh out terms of Novo Banco sale with Lone Star

(Adds Lone Star statement)

LISBON, Feb 20 (Reuters) - The Bank of Portugal will hold a final round of exclusive negotiations with U.S. private equity firm Lone Star as it seeks to flesh out the terms of the potential sale of state-rescued lender Novo Banco, the central bank said on Monday.

The start of exclusive talks with Lone Star, which reaffirmed its commitment to reaching a deal, comes as Portugal faces an August 2017 deadline to sell the bank that was carved out of Banco Espirito Santo after its 2014 collapse.

"The Bank of Portugal has decided to select potential investor Lone Star for a concluding round of exclusive negotiations, with a view to finalising the possible terms of the sale," the central bank said in a short statement, without providing more details.

Olivier Brahin, president of Lone Star for Europe, said in a separate statement his firm was "committed to confirming a final agreement with the Bank of Portugal to support Novo Banco" with capital and expertise and ensure it remains a strong player in the local banking sector.

"We are deeply confident in Novo Banco’s future. Having conducted a thorough analysis of the bank over the last several months, we are convinced of Novo Banco’s value to the strong future of the Portuguese economy."

Lone Star said that upon reaching an agreement with the Bank of Portugal, it would work with the current Novo Banco management to strengthen the bank's capital position and launch new financial products and services.

The central bank last month picked Lone Star ahead of other prospective buyers including China's Minsheng Financial Holding and U.S. fund Apollo.

It said then that Lone Star had set conditions that could have an impact on public accounts, which the state sought to minimise via further talks.

The first attempt to sell Novo Banco, which in 2014 received an injection of 3.9 billion euros in public funds, failed in 2015 after the state considered bids as too low.

Even now, it is only expected to recover a portion of that money. The government has said that no option, including nationalisation, is ruled out for Novo Banco, but anything other than a sale would be a last-resort measure and would have to be discussed with European authorities.

(Reporting by Andrei Khalip; Editing by Louise Heavens and Mark Potter)