E A Shareholder’s View On Portugal Telecom’s Impropriety

In August 2014, when I was in Portugal buying into Portugal Telecom (PT) after the failure of the Luxembourg holding company, I recommended Rioforte to pay back the $1.1 bn it owed Portugal Telecom. PT had placed this sum in a short term commercial paper loan at the advice of its 15% shareholder, the 2nd largest Portuguese bank, Banco Espirito Santo (BES). 

After Rioforte failed to pay back PT in July the eventual result was bankruptcy of the whole BES group and its own Luxembourg holding company, Groupe Espirito Santo (GES). PT was in a merger deal with Oi (OIBR) which was restructured because PT could not pay what it was supposed to because they money had gone missing in Luxbembourg. 

The rewritten deal is still pending but the eventual aim is to sell PT to Patrick Drahi’s own Luxembourg holding company Altice and then OIBR will use the money to buy control of the Telecom Italia Brazilian cellphone firm.

My idea then was:
1) a global Brazil-Portugal telecom company with a decent dividend is worth owning;

2) the Luxembourg government will not let the Espirito Santo family get away with stealing the assets of Rioforte and GES;

3) there are rules and regulators of banking and stocks  in Lisbon which is trying to become a serious marketplace;

and 

4) the assets were worth more than what Rioforte owed PT.

I was right on no. 4 but not the other two. So I am fighting back.

I wrote at the time: