| SAO PAULO, July 15
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)