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Portugal Telecom warns Espirito Santo bank on unpaid debt

Published on 16/07/2014

A key shareholder in stricken Portuguese bank Banco Espirito Santo (BES) has failed to repay a huge debt, putting the banking group at risk of legal action, the unpaid creditor Portugal Telecom said on Wednesday.

Holding company Rioforte, a main shareholder in BES, failed to repay 847 million euros ($1.15 billion) by a deadline on Tuesday, PT said.

PT warned that it would use every possible means against Rioforte and all related bodies to obtain repayment, but a source close to the matter said Rioforte was set to seek protection from insolvency.

PT also revealed that Rioforte’s inability to repay had also cost it a large slice of its intended stake in a tie-up deal with Brazilian telecom group Oi.

The announcement of Rioforte’s inability to repay 847 million euros adds to pressures on BES, already suffering from a plunge in its shares despite a change of management.

BES is the leading private bank in Portugal.

The crisis around its holding company, which has gathered pace in recent weeks, has weakened other leading Portuguese banks and also the image of Portugal which emerged from a debt bailout in May.

However, analysts have said that the risks of contagion from the BES crisis to other parts of the Portuguese financial system so far appear limited.

Rioforte is preparing to seek court protection from its creditors “within the next few days”, a source close to the matter told AFP late on Tuesday.

Portugal Telecom had bought Rioforte debt worth a total of 897 million euros, and 847 million euros of this was due for redemption on Tuesday.

– New PT-Oi agreement –

The purchase by PT of Rioforte debt, amounting to a loan to the holding company, was criticised at the time by Oi, and has weighed on their tie-up talks in recent weeks.

PT said that on Wednesday the two telecom companies had signed a new agreement changing the terms of their tie-up, reducing PT’s stake in the new combined entity from 38.0 percent to 25.6 percent.

The crisis at BES has its origins in the discovery of a hole in the accounts of the overall holding company in the bank, called Espirito Santo International (ESI).

This led to the removal of the long-standing chief executive at the bank, Ricardo Salgado, who was replaced on Monday by an economist Vitor Bento.

Rioforte, which is based in Luxembourg, is expected to put forward a plan to restructure its balance sheet to the commercial court in Luxembourg with the aim of selling assets and raising funds, while being sheltered from creditors.

Rioforte owns 49 percent of Espirito Santo Financial Group (ESFG) which in turn is the main shareholder in BES with 20.1 percent alongside French bank Credit Agricole which has 14.6 percent.

The price of shares in BES bank shed another 14.61 percent on Tuesday to a record low price of 0.38 euros.