(Adds BNDES president's comments in paragraph 6-8, share
performance in last paragraph)
By Leonardo Goy
BRASILIA, July 11 Brazil's government does not
believe a planned merger of Grupo Oi SA and Portugal
Telecom SPGS SA is at risk, three sources with direct
knowledge of the situation said on Friday, as tensions grew over
Portugal Telecom's debt deals with troubled Banco Espírito Santo
Oi, which controls Brazil's fourth-biggest wireless carrier,
and state development bank BNDES, a major sponsor of the merger,
had lashed out at Portugal Telecom for not disclosing a debt
investment in holding company Rioforte, which is under
investigation in Luxembourg over liquidity issues.
The representatives of two key Oi shareholders quit Portugal
Telecom's board at the start of the month, when Portugal
Telecom's 897 million euro ($1.22 billion) investment in
Rioforte, controlled by key shareholder Banco Espírito Santo,
came to light.
Recent disclosures of financial irregularities at a web of
family-held holding companies behind Banco Espirito Santo,
Portugal's largest listed bank, have raised questions about
potentially destabilizing losses at the bank and other companies
in the family's orbit.
The Brazilian government is monitoring the situation "from
afar," with some officials making initial consultations with
regulatory agencies about the situation, said a first source,
who declined to be identified because of the sensitivity of the
issue. President Dilma Rousseff's administration has been a
major sponsor of the merger since it was announced last year.
"Our belief is that the situation won't get to the point of
sinking the deal. That would be a lose-all situation," the
source said, adding that "both sides need the merger" to grow.
On Friday, Luciano Coutinho, president of BNDES, told
reporters in São Paulo that the merger is unlikely to collapse
as a result of the Portugal Telecom investments in Rioforte,
which might lead both companies to rework the terms of the deal.
"We will analyze the conditions," Coutinho said, without
elaborating. He added that BNDES will seek to preserve the
interests of Oi shareholders because "that is our fiduciary
The debt investment in Rioforte, equal to roughly 40 percent
of Portugal Telecom's market value, matures in coming days, and
was hanging over the Oi merger. The merger has been touted as a
chance to strengthen Oi's corporate governance after years of
bickering between minority and controlling shareholders, but
distrust of the Portuguese partner is clouding those hopes.
Securities watchdog CVM as well as Anatel, the
telecommunications industry regulator, are monitoring how the
situation evolves, a second source said. Anatel requested
information from both companies, the second source said, without
A third source said that so far, the dispute has not reached
the point of becoming a "political issue." The common belief is
that any eventual problems between partners are "a company
problem that can be resolved with market means," the third
Portugal Telecom shed 1.6 percent to 1.834 euros in Lisbon.
Preferred shares of Oi rose 11 percent to 1.71 reais.
(Writing and additional reporting by Guillermo Parra-Bernal;
Editing by Bernadette Baum and Lisa Shumaker)