Portugal Telecom's shares drop on RioForte debt purchase news
LISBON, June 27 (Reuters) - Shares in Portugal Telecom fell by over 3 percent on Friday after the company said it had bought 900 million euros in debt issued by a holding company of Portugal's Espirito Santo banking family that has been under scrutiny over irregularities at another holding company.
Portugal's largest listed bank, Banco Espirito Santo (BES) , which was controlled by the Espirito Santo family before a rights issue this month, is the largest shareholder in Portugal Telecom with a 10 percent stake.
In turn, Portugal Telecom holds about 2 percent of Banco Espirito Santo.
"Obviously, this fall in PT is due to the market's reaction to the news of PT refinancing itself via debt of its main shareholder, which has reputational impact," said Albino Oliveira, an analyst at Fincor brokers in Lisbon.
"PT could this way get itself into possible scrutiny by regulators ... We cannot forget that this is happening against the background of a constant negative news flow involving BES."
A PT spokesman said earlier the company had bought 900 million euros in commercial paper issued by RioForte, a Espirito Santo family holding company, before it merged with Brazil's Oi .
Before its rights issue BES warned of serious financial irregularities at another Espirito Santo family holding company - Espirito Santo International, which owns 100 percent of RioForte.
At the time, BES warned of "reputational risks" because the bank had sold commercial paper issued by Espirito Santo International through its branch network to retail investors.
BES shares that have been very volatile lately, were down 6 percent by 0832 GMT on Friday, while shares in Portugal Telecom were down 3.4 percent at 2.79 euros.
(Reporting By Filipa Cunha-Lima and Andrei Khalip; Editing by Greg Mahlich)
© Thomson Reuters 2016 All rights reserved.