* Espirito Santo family holding can't pay debts, wants
controlled assets sale
* Angola central bank says BES's Angola unit needs capital
* Says unit needs capital to address 'bad' credit operations
* Portugal central bank says private investors could help
(Recasts with filing for creditor protection)
By Shrikesh Laxmidas and Andrei Khalip
LISBON, July 18 One of the holding companies of
Portugal's Espirito Santo banking clan filed for creditor
protection in Luxembourg on Friday and the business empire's
problems also spilled over to Angola where the central bank said
the local unit of Banco Espirito Santo would need more capital
to deal with bad loans.
Banco Espirito Santo (BES), Portugal's
largest-listed lender, is under scrutiny from investors and
regulators after disclosures of financial irregularities at
Espirito Santo International, or ESI, the entity that sought
Its problems have raised the possibility of destabilising
losses at the bank. ESI, which is registered in Luxembourg,
indirectly holds the largest stake in BES, at 20.1 percent.
ESI said it is "currently not able to meet its debt
obligations, a material portion of which have matured".
The announcement comes three days after conglomerate
Rioforte, an ESI subholding, failed to repay over $1 billion
euros in debt to Portugal Telecom, forcing it to take a
cut in its stake in a merger with its Brazilian rival, Grupo Oi
ESI said in a statement that if its request for controlled
management is accepted, all enforcement actions by creditors
would be suspended.
That should allow it to sell assets in an orderly fashion
under the control of the courts, "to enable the value of these
assets to be enhanced as opposed to a massive and fast sale."
ESI sits at the top of a complex cascading ownership
structure of the family empire.
Sources told Reuters earlier this week that Rioforte - which
owns assets around the world from hotels to farms to energy and
hospitals - had been preparing to file for creditor protection
and it was not yet clear if a separate filing would be required.
ESI owns 100 percent of Rioforte capital.
BAD LOANS IN ANGOLA
Meanwhile, investors are watching potential liabilities at
BES's 12-year-old Angolan unit as a fault line in an escalating
affair that has already roiled global markets.
Banco Nacional de Angola Governor Jose de Lima Massano broke
his government's silence on the matter, saying the BESA Angolan
subsidiary had problems with its credit portfolio.
"We have operations in an irregular state, so 'bad' credit
operations," Massano said in Thursday statements to the Angolan
parliament, which were emailed to Reuters on Friday. He did not
give further details on the type or extent of the bad credit.
Massano said the problems at BESA - which is majority owned
by BES and is one of the most active lenders in Africa's
second-largest oil producer - would not pose a threat to
Angola's overall financial system.
"What is not at stake is either the guarantee of the
deposits made with BESA, nor the responsibilities which this
bank has with third parties, and much less the stability of our
financial system," Massano said.
The government of Angola, a former Portuguese colony, in
December guaranteed 4.2 billion euros, or 70 percent of the loan
portfolio of BESA, which has links to the ruling elite and
family of President Jose Eduardo dos Santos.
However, the guarantee lasts only until mid 2015, and some
investors have expressed concern that it could be diluted by
Angola's poor credit rating. Portugal's central bank says it is
sure BESA would honour its commitments, but Luanda has not
commented on the state guarantee.
Analysts say the Angolan state and state-linked companies
are most likely to take a larger stake in BES Angola as BES has
no capacity to subscribe to any capital increase.
Angola's disclosure comes as Portugal's establishment is
trying to assure investors that problems with the Espirito Santo
family empire - where at least two holding companies are
suffering financial difficulties, imminent bankruptcy
proceedings and restructurings - will not have a bearing on the
southern European country's financial stability.
Earlier on Friday, the Bank of Portugal reiterated that BES,
which raised capital in May, has sufficient capital reserves to
make up for any losses and added that the lender would be able
to tap private investors should it need a further boost.
"Preliminary contact between BES and international
investment banks, as well as interest shown by various entities,
investment funds and European banks show that it is very
probable that there could be a private solution to reinforcing
capital," central bank governor Carlos Costa told a
And Portugal's stock market regulator said the exposure of
all foreign and local investors registered in Portugal to BES,
its units, and the Espirito Santo family companies was minimal -
257 million euros - compared with the 13 billion euros managed
by funds registered in the country.
Investors seemed to agree that BES could be a buying
opportunity. One banker who has worked with BES said there was a
lot of interest in the Portuguese bank.
Another banker said investors still believed in the broader
recovery story of Portugal, which last spring emerged from the
international bailout it took during the euro zone debt crisis.
TRICKLE DOWN TROUBLES
Still, the Espirito Santo clan's troubles have had a major
trickle-down effect since they broke into the open. In May, BES
told investors that independent auditors had found
"irregularities" at ESI.
It said the problems had left ESI in a "serious financial
situation" and that this would trigger "reputational risk" for
BES. ESI owns a nearly 50 percent stake in another company,
Espirito Santo Financial Group, or ESFG, which in turn owns the
20.1 percent stake in BES.
The potential losses at BES, which put its direct exposure
to family holdings at 1.15 billion euros, prompted investor
panic in equity markets across the world earlier this month.
The bank has said it has 2.1 billion euros in capital above
minimum regulatory requirements to deal with any losses. But it
has not been able to quantify the potential losses, because it
is awaiting a restructuring of the Espirito Santo holding
companies to do so. BES shares reversed losses of more than 3
percent to end up 0.24 percent at 0.42 euro after Costa's
remarks, but have lost about 60 percent in a month.
Portuguese prosecutors said on Friday they were
investigating the family's web of businesses, and a group of
investors are preparing to file a lawsuit over the unpaid debt
of one of its companies.
Portugal Telecom has also been caught up in the
Espirito Santo woes due to its exposure to Rioforte and its
shares have plummeted to all time lows. Its shares lost 1.76
percent on Friday, and are down about 40 percent since mid June.
Portuguese Telecom executives are now under fire for making
the loan in the first place. People familiar with the talks that
led to the loan said PT executives knew the Espirito Santo
family had financial problems when the telecom firm lent them
the money in April.
PT also faces a lawsuit by several minority investors,
expected to be filed on Friday, over its alleged failure to
properly gauge the risks of the debt.
"The executive board had to observe the correct distribution
of risks, a precaution that they failed to take, which resulted
in a suicidal exposure," Octavio Viana, the head of investor
association ATM and a representative of the shareholders, said.
(Reporting by Andrei Khalip, Shrikesh Laxmidas, Sergio
Goncalves and Freya Berry; Writing by Alessandra Galloni;
Editing by Will Waterman and Alden Bentley)