SAO PAULO, July 15 Some large shareholders in Grupo Oi SA could sue partner Portugal Telecom SA if a debt investment made by the latter ends up in default, which could delay the companies' planned merger, a source close to the deal said.
Shareholders of Rio de Janeiro-based Oi want to push Portugal Telecom to take a smaller stake in the company resulting from the merger, depending on the outcome of the debt negotiations later on Tuesday, said the source, who declined to be identified because of the sensitivity of the issue.
The merger, however, is not at risk because "both companies need each other," the source added.
Going to court would be a "last resort" for the Oi shareholders, who were not informed of Portugal Telecom's 897 million euro investment in an investment vehicle controlled by Portugal's Espirito Santo family, the source said.
The family is also a key shareholder in the Portuguese firm. Oi is controlled by Portugal Telecom and other Brazilian companies including Andrade Gutierrez SA, LF SA, a number of state-controlled pension funds and development bank BNDES.
If the debt is not repaid and Portugal Telecom has to write off the investment, the shareholders in Oi would have to sue in order "not to be seen as negligent or lenient over a serious corporate governance flaw," the source added.
Rioforte, the Espirito Santo investment vehicle, is preparing to file for creditor protection with a court in Luxembourg in hopes of preventing uncontrolled asset sales at any prices, sources told Reuters on Tuesday.
Those same sources declined to comment on how such a filing would impact the repayment of Rioforte's debt to Portugal Telecom, adding that negotiations on the matter were ongoing.
No one was immediately available at Portugal Telecom, Andrade Gutierrez or LF to comment. Oi declined to comment.
Luciano Coutinho, president of Brazil's BNDES development bank that is a major shareholder in Oi, declined to comment on the deal on Monday.
Portugal Telecom's two debt investments in Rioforte were equal to roughly 40 percent of the telecom firm's market value.
The merger had been touted as a chance to strengthen Oi's corporate governance after years of bickering between minority and controlling shareholders.
Brazilian newspaper Valor Econômico reported on Tuesday that, in the event of a default, Oi shareholders would push to reduce Portugal Telecom's stake to 20 percent from the current 37 percent in the new company, for now known as CorpCo, and could go to court if Portugal Telecom resisted such a demand.
Valor, without citing a source for the information, said that shareholders, executives and lawyers at Oi were in Portugal, waiting to see if the Espirito Santo family-controlled investment vehicle would repay the roughly 850 million euros of the investment falling due later in the day.
According to Valor, it is still unclear how proceedings will unfold if the debt payments are partially or totally rolled over for payment at a later date. (Additional reporting by Reese Ewing and Brad Haynes; Editing by James Dalgleish)