Portugal Telecom buys 900 mln euros debt from Espirto Santo holding

LISBON, June 27 Thu Jun 26, 2014 6:35pm EDT

LISBON, June 27 (Reuters) - Portugal Telecom bought 900 million euros in commercial paper issued by RioForte, a holding company of Portugal's Espirito Santo family, before it merged with Brazil's Oi, a spokesman said on Friday.

Portugal's largest listed bank, Banco Espirito Santo (BES), which was controlled by the Espirito Santo family before a rights issue this month, is the largest shareholder in Portugal Telecom with a 10 percent stake.

In turn, Portugal Telecom holds about 2 percent of Banco Espirito Santo.

A spokesman for Portugal Telecom said the investment was part of liability management. The story first appeared in the online version of weekly Expresso on Thursday.

"Of the various available investment options, RioForte's commercial paper offered an atractive rate, and because of that there was a short-term investment in commercial paper of about 900 million euros, bearing in mind our good experience of treasury investments in Banco Espirito Santo," the spokesman said.

Before its rights issue, BES warned of serious financial irregularities at another Espirito Santo family holding company - Espirito Santo International, which owns 100 percent of RioForte.

At the time, BES warned of "reputational risks" because the bank had sold commercial paper issued by Espirito Santo International through its branch network to retail investors.

Portugal Telecom concluded a merger with Brazilian telco Oi this year.

(Reporting By Sergio Goncalves; Writing by Axel Bugge; Editing by Leslie Adler)