Brazil's Oi sees bonds, shares slump on Portugal worries
By Joan Magee
NEW YORK, July 10 (IFR) - Brazilian wireless and fixed-line carrier Oi's bonds and shares tumbled Thursday on concerns that a pending mega-merger with Portugal Telecom may be threatened by accounting irregularities at Portugal's Banco Espirito Santo.
Investors are fretting about the credit risks from Portugal Telecom's purchase of EUR897m in commercial paper issued by RioForte, which is owned by Espirito Santo International, an entity now under investigation for alleged breaches in company law.
Oi said that such investments were not disclosed prior to it agreeing to merge with Portugal Telecom.
"The best case scenario is that they somehow manage to get the money back from RioForte, but in reality they'll either have to roll the CP or take a big write-down," said a high-yield bond investor.
Such fears sent Oi stock to a historic low on Thursday morning of BRL1.60 per share on the Bovespa.
Meanwhile the company's most liquid 2022 bonds tumbled two points to 94.75 mid-market and were significantly wider in spread terms due to Treasury moves, said a senior trader in New York.
"The downside for bondholders is that they lose all the money and the deal with Oi falls apart," added the high-yield bond investor.
News that Espirito Santo Financial Group had suspended the trading of its shares and bonds triggered a broader selloff this morning as investors fretted about the health of the parent company of Banco Espirito Santo (BES) - Portugal's largest bank and the biggest shareholder in Portugal Telecom. Continuación...