Portugal Telecom’s call option to rebuild its stake in the company resulting from its merger with Oi has been changed so that it could be repaid in cash rather than equity.
PT’s share of the merged Oi/PT holding company, known as CorpoCo, was set to…
Portugal Telecom’s call option to rebuild its stake in the company resulting from its merger with Oi has been changed so that it could be repaid in cash rather than equity.
PT’s share of the merged Oi/PT holding company, known as CorpoCo, was set to be 37.4%, but the terms between the operators changed when PT debtor Rioforte defaulted on €897m of commercial paper earlier this month.
Under the new arrangement, PT is receiving 25.6% of CorpCo and has a call option to acquire the difference. Under the initial revised terms those shares, amounting to 11.8% of CorpCo, were set to be held as treasury stock.
However, the agreement has been amended so that CorpCo is not obliged to hold on to those shares. If PT exercises its call and CorpCo does not have enough stock to return to PT it can now pay cash instead.
PT will only be able to exercise its call option if it can secure repayment of the €897m Rioforte debt. The Portuguese company will remain listed but its only holdings will be the debt owed to it by Rioforte, which it intends to recover through the courts, and the call option.
The option is valid for six years. In that time it can repurchase 474 million common shares for R$1.85 each and 949 million of preferred shares for R$2.01 each. However, these prices will rise by the Brazilian CDI rate plus 1.5% annually.
In addition the amount of shares PT is allowed to purchase will also fall over time. The number will go down 10% after the first year and then 18% annually thereafter.
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.
Brazilian development bank Bndes has criticised PT’s investment, which it made in April, during the merger process. The bank said that the debt deal was “inconsistent with minimum standards of good corporate governance”.
PT bought the bonds with funds it had deposited in Espirito Santo bank accounts and considered the investment “risk-free”. Several minority investors in PT are reported to be preparing to sue the board over its decision to purchase the Rioforte debt.
