Securities commission opens probe into Portugal Telecom investment

Portuguese securities commission CMVM has opened a formal probe into Portugal Telecom investment in debt issued by Rio Forte Investments, a unit of conglomerate Espírito Santo International, Portuguese daily Expresso reported.

Portugal Telecom acquired 897mn euros (US$1.22bn) in commercial paper from Rio Forte.

The probe will assess whether the deal unfairly favored shareholders or constituted an investment between interested parties, since the Espírito Santo Group (GES) is the second largest shareholder of the telecom operator, with a stake of over 10% in Portugal Telecom.

Portugal Telecom, in turn, holds a 2% share of GES.

The regulator did not confirm the investigation. On Thursday, CMVM suspended the trading of Banco Espírito Santo shares on the Lisbon stock market.

POLEMICS

The Rio Forte deal, reported in June, sparked an internal crisis in the Portuguese telco.

Brazilian telecoms carrier Oi, which is in the process of merging with parent company Portugal Telecom, said in July 3 it would challenge the telco over the deal.

"Oi was not informed nor did it participate in the decisions that led to this financial investment, which was made prior to the acquisition of Oi's shares by Portugal Telecom in Oi's recently completed capital increase," Oi said in a filing to Brazilian securities commission CVM.

The deal also caused the resignation of two Portugal Telecom board members: Otávio Azevedo, president of the Andrade Gutierrez group, and Fernando Magalhães Portella, CEO of Jereissati Participações.

This week, Brazilian development bank BNDES, which is a shareholder in Oi through its stake in Telemar Participações, declared the operation "inconsistent with minimum standards of good corporate governance."

The bank requested clarification from Portugal Telecom.