Amec publishes Market Communication about Oi and Portugal Telecom case

On July 29, Amec – the Association of Capital Market Investors – published a Market Communication about its position on the solution proposed to approach the problems related to the € 897 million default of Rioforte, a company that is part of Grupo Espírito Santo (GES), in PT.
The association understands that the solution may favor Portugal Telecom to the remaining shareholders’ detriment as a result of the granting of a “synthetic put option” totaling hundreds of million reais. According to the notice, “This amount results from the possibility that Portugal Telecom may opt not to increase its share interest in Oi in the event the company’s situation gets even worse in the future. This option becomes even more ‘valuable’ considering it is granted to an insider.”
Essentially, Amec explains that Oi’s Board of Directors and the remaining members that are part of the company’s controlling group had an asymmetric interest in approving the operation – yet it meant the transfer of value to Portugal Telecom’s shareholders – with a view to avoiding that the operation, through which some R$ 4,5 billion referring to controlling shareholders’ debts were transferred to Oi, was put at risk.
“Portugal Telecom made an investment and incurred a loss. If the company was valued “x”, now it values a bit less than “x.” At that time, we already knew that PT’s assets were overvalued, but now they are even more overvalued, what further aggravates the problem,” states Walter Mendes, Amec’s Vice President.
Mendes also explains that the already indebted Oi had its classification rate downgraded, what negatively affects the company’s capital cost. “In addition to the R$ 2.7 billion (the estimated debt in reais) that are not going to be booked into the company’s cash figures now, the already indebted company will see an increase in its capital cost as a result of such downgrade.”
Click here to read the full market communication.