Portugal's BES shares slump as group debt falls due

Tue Jul 15, 2014 7:42am EDT

* Espirito Santo group must pay back 847 mln euros on Tuesday

* Debt owed to Portugal Telecom, which is merging with Brazil's Grupo Oi

* PT-Oi merger terms to be revisited if debt not made

* Banco Espirito Santo shares tumble, bond yields keep climbing

By Axel Bugge

LISBON, July 15 (Reuters) - Portugal's Espirito Santo family is racing to find a way to repay 847 million euros ($1.16 billion) in maturing debt, on which the terms of a major telecoms merger hang, while shares in the bank the family founded plumbed record lows.

The debt is owed to the country's largest telecom services provider, Portugal Telecom, currently in the throes of a tie-up with Brazil's Grupo Oi, which is likely to amend the terms of the deal in the event of a default.

The concerns surrounding Banco Espirito Santo, Portugal's biggest listed bank, have flared since an audit of a holding company belonging to the family found a "serious financial situation" there. Last week the worries sent European markets into turmoil.

Further evidence of the family's financial difficulties came late on Monday, when a group company sold a 5 percent stake in BES, set up more than a century ago, at a deeply discounted price because it had to meet a margin call.

The sale helped push BES shares 20 percent lower on Tuesday, to a record low of 0.3550 euro, just above the 0.34 euro price at which the Espirito Santo Financial Group (ESFG) sold the 5 percent stake.

"The sale by ESFG at a brutal discount shows they are jumping ship," said Jose Novo, a trader at Orey iTrade brokers.

"The stake sale was a great pressure factor as they put a sort of a target price into people's heads, but it would have been difficult to sell a big block of shares otherwise in the market," said Andre Rodrigues, an analyst at Caixa BI.

Yields on BES debt kept climbing on fears bondholders would bear the cost if the bank ran into difficulty, reaching 11.7 percent on 10-year bonds, up from 10.6 percent on Monday and more than double where they stood a month ago.

MERGER AMENDMENTS?

Last week, news emerged that an Espirito Santo family holding company had failed to meet debt payments in full and on time.

"There are reports and expectations that holding companies of the Espirito Santo group could at any moment file for protection, Portugal Telecom being just one of the creditors who would be affected," said Rodrigues.

A group company Rioforte is due to make a payment of 847 million euros on maturing commercial paper to Portugal Telecom on Tuesday, with a further 50 million due later in the week. PT's Brazilian merger partner is watching carefully.

Brazil's Communications Minister Paulo Bernardo said late on Monday that if the payment were not made, the "partners will revisit terms of the merger and their stakes in the combined company".

Neither Portugal Telecom nor anybody at the Espirito Santo family has commented on the payment, and they are not expected to until after markets close.

Shares in Portugal Telecom have lost about a third of their value on the concerns in the past few weeks and were 1.44 percent lower on Tuesday.

Efforts to distance BES from the founding family accelerated on Monday after the Bank of Portugal ordered that a new, independent management team take over immediately. ($1 = 0.7331 Euros) (Additional reporting by Filipa Cunha Lima and Andrei Khalip; Editing by Will Waterman)

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