LISBON, Jan 31 (Reuters) - U.S. private equity firm Lone

Star has told the Portuguese government that it is likely to

sell a 25-30% stake in Novo Banco via an initial public

offering, rather than seek a full sale, Finance Minister Joaquim

Miranda Sarmento said on Friday.

In September, three sources with knowledge of the matter

told Reuters that Lone Star, which owns 75% of Novo Banco, was

considering a full sale as well as weighing an IPO. The sources

said Novo Banco was worth about 5 billion euros ($5.2 billion).

Novo Banco, Portugal's fourth largest bank, was created in

2014 from the Portuguese government's bailout of collapsed

private bank Banco Espirito Santo.

Lone Star has owned its stake since 2017, with Portugal's

resolution fund and the state owning the rest.

Miranda Sarmento said the government had been told by Novo

Banco and Lone Star that the U.S. private equity firm wanted to

carry out "an IPO of around 25% to 30% of the capital" of the

bank.

He said the government "has never been informed that Lone

Star is selling its entire 75% stake in the bank".

Novo Banco declined to comment. A request for comment has

been emailed to Lone Star.

Although the top five Portuguese banks control more than 80%

of the country's banking assets, analysts see room for further

consolidation to improve competitiveness.

The board of Novo Banco, however, says the bank would be

better off as a standalone lender.

In June, state-owned Caixa Geral de Depositos (CGD) CEO

Paulo Macedo said the country's largest bank was considering

"all the hypotheses" to buy another lender to preserve its

market leadership in the face of expanding foreign banks,

particularly from Portugal's larger neighbour Spain.

"If CGD decides to evaluate what the market conditions and

what future developments may be, the government will then make

decisions based on this evaluation, but we will not interfere in

the management of CGD," Miranda Sarmento told reporters.

The other top banks in the country include Millennium bcp

, Santander Portugal, which is owned by Spanish

giant Santander, and BPI, owned by Spain's CaixaBank.

($1 = 0.9626 euros)