(Recasts to add details, comments, background throughout)
By Leonardo Goy
BRASILIA, July 14 Shareholders of Grupo Oi SA are likely to seek to renegotiate terms of a merger with Portugal Telecom SPGS SA if the latter's debt investments with Banco Espírito Santo SA end up in default, Brazilian Communications Minister Paulo Bernardo said on Monday.
Shareholders of Oi, which include state development bank BNDES, could also seek to change the stakes that partners would have in the combined company in a default, Bernardo said. But he said he does not believe a planned merger of Oi and Portugal Telecom is at risk.
Recent disclosures of financial irregularities at family-held holding companies behind Banco Espírito Santo SA, Portugal's largest listed bank, have raised questions about potentially destabilizing losses at the bank and other companies in the family's orbit. One of those holding companies faces the repayment of almost 850 million euros ($1.16 billion) in debt on Tuesday.
"There's a transaction that matures tomorrow. If the money comes back, it's fine. If it doesn't come back, it's evident that BNDES and the other partners will revisit terms of the merger and their stakes in the combined company. This situation certainly badly hurt one of the partners," Bernardo said.
Bernardo's comments indicate that the situation is far from becoming a political issue, with Brazil's government expecting both Portugal Telecom, Oi and their shareholders to find a solution to the impasse.
Bernardo told reporters in Brasilia that he requested from Anatel, the telecommunications industry watchdog, additional information on Portugal Telecom and to monitor how the situation evolves.
Last week, Oi, which controls Brazil's fourth-biggest wireless carrier, and BNDES, a major sponsor of the merger, lashed out at Portugal Telecom for not disclosing a debt investment in Rioforte, a company controlled by the Espírito Santos that 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 investment in Rioforte came to light.
Portugal Telecom's two debt investments in Rioforte, which are equal to roughly 40 percent of the telecom firm's market value, mature this week. The merger has been touted as a chance to strengthen Oi's corporate governance after years of bickering between minority and controlling shareholders.
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. (Writing and additional reporting by Guillermo Parra-Bernal; Editing by Chris Reese and Cynthia Osterman)