| LISBON/LONDON, July 11
LISBON/LONDON, July 11 Banco Espirito Santo must
look beyond Portugal to ensure repayment of debts linked to its
founding family, whose business empire extends to Brazil,
France, Switzerland, Luxembourg and Angola.
Concerns about BES are focused on the bank's 1.15
billion euro exposure to two holding companies controlled by the
founding Espirito Santo clan called Espirito Santo Financial
Group (ESFG) and Rioforte, along with their
subsidiaries. These are controlled through a non-listed holding
called Espirito Santo International (ESI) based in Luxembourg.
Worries over the ability of these groups to service their
debts were triggered by the discovery during an audit of a
"serious financial condition" at ESI, a conglomerate near the
top of the pyramid of Espirito Santo family holdings.
The other fear haunting BES investors is whether the bank
will be able to get back 2 billion euros of intergroup liquidity
extended to its Angolan unit.
The bank said late on Thursday that it would not be able to
assess potential losses on its exposure to ESFG and Rioforte
until a restructuring of the wider Espirito Santo group
companies was announced.
If the bank is unable to recoup all of the loans to ESFG and
Rioforte or has to write down their value as part of a planned
restructuring of the Espirito Santo family's holdings, it would
trigger losses that would have a direct impact on BES
Those shareholders include the Espirito Santo family, which
still owns 25 percent of the bank, and French lender Credit
Agricole with a 15.1 percent BES holding, which it has
said it plans to cut. The French bank declined to comment on
whether it planned to make an impairment on the value of its
Portugal Telecom is exposed not only to BES itself
via a 2.1 percent stake, but in the form of nearly 900 million
euros in bonds issued by Rioforte. This bond holding has raised
questions about the future of Portugal Telecom's planned merger
with Brazilian telecoms operator Grupo Oi SA, which
said last week the investment had not disclosed.
Significant overseas shareholders in BES, according to the
bank's Thursday statement, include funds such as Silchester,
BlackRock, Capital Research, Bradesco and Baupost which have
seen the value of their holdings fall by 46 percent over the
BES retail clients are also exposed to any fallout, with
fears that debt instruments issued by the holding companies and
sold by BES to these clients could lead to litigation it.
The other area where investors are exposed is through Banque
Privee Espirito Santo (BPES), a small Swiss bank owned by ESFG.
Earlier this week it said that some of its clients had not been
reimbursed on maturity on debt issued by ESI, although any delay
had been less than 30 days.
(Writing by Alexander Smith; Editing by Sophie Walker)