An €897m bond investment has disrupted the complex merger between Portugal Telecom and Oi and could have repercussions for the ownership balance of the combined entity.
PT bought €897m of commercial paper issued by investment company Rioforte –…
An €897m bond investment has disrupted the complex merger between Portugal Telecom and Oi and could have repercussions for the ownership balance of the combined entity.
PT bought €897m of commercial paper issued by investment company Rioforte – part of the Espirito Santo Group, which is a major PT shareholder – as a short-term outlay. But now there is a significant risk that Rioforte will not be able to repay the debt before the notes’ due date of 15 July and PT could incur a significant loss.
If PT takes a hit on the investment Oi’s investors could ask the share exchange ratio to change, and in this scenario PT would end up owning less of the combined entity.
PT has contributed 100% of its assets to Oi as part of a rights issue earlier this year in exchange for a 37.4% stake in the combined business. The 37.4% was based upon PT’s balance sheet and as such is compromised by the Rioforte investment.
PT is continuing negotiations with Rioforte and Banco Espirito Santo and an announcement on what the Portuguese incumbent plans to do is expected either later this week or early next week.
Brazilian development bank Bndes, which has shares in Oi, has criticised PT’s investment, releasing a statement saying that the debt deal was “inconsistent with minimum standards of good corporate governance”. The bank added that it remained behind Oi’s CEO Zeinal Bava, who previously led PT.
Moody’s senior vice president Carlos Winzer said his agency will assess the implications on Oi´s rating, which currently has a negative outlook, once the outcome of the repayment of the paper is known.
If Oi has to absorb a loss on PT’s Rioforte investment it may have to ramp up its sell-off of non-core assets, according to S&P analyst Luisa Vilhena. Oi has already disposed of a significant number of towers and its subsea cable unit.
