The resignation of the two members on the Portuguese Telecom board who represent the interests of Brazilian merger partner Oi, widely has been interpreted by the market as a sign of deep concern over the investment PT made in Rioforte, a BES subsidiary.
Shares in PT fell 7% on the news, hitting levels not seen since 1996 and was the worst performing share on today’s lively Lisbon stockmarket.
In a statement issued before the market opened, PT announced that Fernando Magalhães Portella and Otávio Marques de Azevedo, representatives of Oi on the PT board, had resigned from their positions. The document did not explain why but clearly the €900 million in BES subsidiary Rioforte bonds purchased by PT and redeemable shortly was the main concern.
There is now talk of Grupo Espírito Santo having to restructure its debts and the worry is that PT will have to wait for its money back.
Those in the know, suspect that Rioforte will be sacrificed in the Grupo Espírito Santo debacle that has seen the BES holding company’s shares halve in six months. PT’s share price today was marked down as if Rioforte had already defaulted.
PT shares now seem tied to those of Grupo Espírito Santo and are suffering in parallel, down 15% in three days, with BES down 21% in the same period.
There are deep concerns over PT’s decision to buy such a huge amount of commercial paper in Rioforte, with analysts noting that the €900 million that was spent managed to tie up 40% of PT’s liquidity.
Rioforte was not PT's first choice. Firstly PT invested €900 million in Espírito Santo International commercial paper, but in April 2014 decided this was getting too risky (how did it know this?) and swapped those securities for identical ones in BES subsidiary, Rioforte.
Espírito Santo International now is technically bankrupt with debts exceeding €7 billion so PT's move was an inspired one, or maybe just well-informed, certainly lucky.
Portugal Telecom's stated reason for funding part of the Espírito Santo Group with the €900 million was a 'liability management’ effort in its merger with the Brazilian company Oi.
The real answer is that the Espírito Santo Group is PT’s largest shareholder.
