Portugal Telecom (PT) is said to be planning on filing one lawsuit and is facing another in the fallout of Rioforte’s default on €897m commercial paper that the Portuguese incumbent had bought in April.
The default has already hit PT’s merger with…
Portugal Telecom (PT) is said to be planning on filing one lawsuit and is facing another in the fallout of Rioforte’s default on €897m commercial paper that the Portuguese incumbent had bought in April.
The default has already hit PT’s merger with Oi. After the Espirito Santo International unit missed the due date on Tuesday, PT said its stake in the combined company would fall from 37.4% to 25.6%.
Now several minority investors in PT are reported to be preparing to sue the board over its decision to purchase the Rioforte debt. One was quoted as saying the investment was “suicidal”.
For its part PT is said to be considering suing Espirito Santo, sources close to the process told Reuters. The telco bought the bonds with funds it had deposited in Espirito Santo bank accounts and considered the investment “risk-free”, the report said.
Meanwhile ratings agency Moody’s has placed PT’s ratings under review for downgrade. Moody’s said the loss will reduce the consolidated entity’s liquidity and could substantially delay Oi’s progress in reducing leverage. It said that if none of the loss could be recovered it would effectively offset one-third of the cash raised through Oi’s recent Brazilian R$8bn capital increase.
However, in a memo Moody´s analyst Carlos Winzer reassured the bond market over the security of its investments.
“We don’t expect the changed terms of the merger between Oi and PT to affect in any way the guarantee from Oi towards PT’s bondholders,” Winzer said.
Rioforte’s missed repayment comes amid a wider crisis at its parent. In May auditor KPMG found irregularities in Espirito Santo’s accounts and said that it was in a serious financial condition.
Rioforte holds a 49% stake in Espirito Santo Financial Group, which in turn holds 20% of Banco Espirito Santo. The investment bank owns 10% of PT’s stock.
Last week Bndes criticised PT’s investment, which it made during the merger process and only recently disclosed. The development bank released a statement saying that the debt deal was “inconsistent with minimum standards of good corporate governance”.
