Late in 2013 Portugal Telecom held €750 million in Espírito Santo International debt which was repaid with interest early in 2014. So far, so good.
Additional information about PT’s close relationship with Espírito Santo companies is revealed in notes on market regulator CMVM's website posted on Monday night.
These show that PT group companies bought short-term debt in Espírito Santo International three times last year.
Portugal Telecom bought €200 million in Espírito Santo International debt on 29 October; then on November 8, PT Finance subscribed to €500 million more. The loans were paid back by Espírito Santo between January and February 2014.
Espírito Santo International is the owner of Rioforte which controlled the non-financial companies in the Espírito Santo empire as well as 49% of the Espírito Santo Financial Group.
In 2012, PT had invested €510 million in Espírito Santo International debt which was paid back, unlike the 2014 €897 million loan to Rioforte which went bust. There was a small moment of happiness for PT shareholders as Henrique Granadeiro, the PT chief executive, resigned but this did not bring back the €897 million that had evaporated.
In the document submitted to the regulator and posted on its website, PT also reported that loans to Espírito Santo International represented, at the end of 2013, 82% of its short term investments. This amount was nearly double the annual profit that year, which was €388 million.
In a rare example of mea culpa, the current directorship has commented that PT recognises that there has been a concentration in short-term investments.
"Regarding the criteria for investment in diversified and reputable financial institutions, it should be noted that, given the concentration of deposits and loan notes in Banco Espírito Santo and Grupo Espírito Santo as at December 31, 2013, the company did not comply with a policy of effective diversification."
For 'the company' read 'the directors'
Last year Portugal Telecom loaned around €1,400 million to Espírito Santo companies due to one reason and one reason alone - Grupo Espírito Santo was PT’s biggest shareholder and the group run by Ricardo Salgado was using PT like a bank. Salgado already had a bank in BES but this was too obvious a route when he needed short term cash for his failing conglomerate - and quick.
How the current PT board remains at their desks defies polite description. The directors' casino mentality and lack of fiscal prudence when dealing with, what after all, are large sums of shareholders’ money, makes each one unfit successfully to continue to steer and direct this major Portuguese company.
It is all well and good to sack the Chief Executive but PT's Henrique Granadeiro's walk of shame ought to be the first in a long line. Joaquim Aníbal Brito Freixial de Goes resigned as a non-exec director of PT on August 4th following non-exec Amílcar Carlos Ferreira de Morais Pires on July 30th.
Pires was Salgado's man on the inside as he formerly had been a financial administrator at Banco Espírito Santo and also has been implicated in the Monte Branco money laundering investigation.
The two Brazilian directors on the PT board, Fernando Magalhães Portella and Otávio Marques de Azevedo fled at the first sign of trouble and resigned on July 1st this year.
There is an Extraordinary General Meeting on September 8th. In the meantime the Board has "directly mandated Price WaterhouseCoopers independently to analyse the procedures and actions to date on this matter and undertake a wide ranging analysis of all relevant aspects concerning treasury applications in Grupo Espírito Santo entities."
Let's hope PWC does so without an eye to future audit and advice fees.
