Brazil’s communications minister Paulo Bernardo has said that the conditions of Oi’s merger with Portugal Telecom (PT) will likely be revisited if Rioforte defaults on more than US$1bn of debt held by the Portuguese incumbent.
Bernardo said that if PT…
Brazil’s communications minister Paulo Bernardo has said that the conditions of Oi’s merger with Portugal Telecom (PT) will likely be revisited if Rioforte defaults on more than US$1bn of debt held by the Portuguese incumbent.
Bernardo said that if PT is not repaid today, when the vast majority of its US$897m (US$1.2bn) of Rioforte notes mature, then Brazil’s development bank – and Oi shareholder – Bndes and other investors will review the stakes they are set to hold in the combined company.
PT bought the Rioforte commercial paper issued by investment company Rioforte – part of the Espirito Santo Group, a major PT shareholder – as a short-term outlay and did not disclose it to Oi.
An audit of Espirito Santo has highlighted financial irregularities and raised the prospect of destabilising losses at Portugal’s largest listed bank.
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.
Last week Bndes 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.
