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Portugal Telecom share crash

ptEspírito Santo Group subsidiary Rioforte applied for creditor protection in Luxembourg which was denied last Friday.

Rioforte owes Portugal Telecom €900 million which is has been unable to repay, and now is likely never to have the resources to repay.

This leaves PT out of pocket and its share price reacted today by going into a further sharp decline to the dismay of shareholders, falling 29% at one point in today’s frenetic trading.

No one yet knows if Rioforte is bust but the likelihood is that it owes far more than it is worth and that its affect on Portugal Telecom's finances will be permanent.

Morgan Stanley, the adviser to French predator Altice which is after PT, issued a thinly veiled sell note to depress the shares further.

According to analysts, a major cause of the dramatic fall in PT’s share price today was indeed the announcement on Friday about Rioforte by the Luxembourg court.

Bloomberg agreed and the shares had dropped 29% by lunchtime today. At 86.5 cents a share the former giant of the telecoms sector was valued at just €788 million, which represents a value of less than the loan made by PT to Rioforte.

Portugal Telecom holds a position in the Brazilian telecoms company Oi, with which it is in the process of merging. This merger now is threatened as Oi wants to sell PT as soon as buyer comes up with some money, and Altice is a willing buyer, at the right price.

Indeed by midday shares were trading at €0,865 which values the telecommunications giant at around 788 million euros.

“This value is even less than the 897 million euros that the company invested in Rioforte

- See more at: http://portugalresident.com/stock-losses-as-pt-shares-bomb-by-more-than-27#sthash.hVxjBJqY.dpuf

Some of today’s rout will have been caused by smaller shareholders who had pledged their shares as security for loans. As the price went into freefall their holdings will have triggered an automatic ‘sell’ instruction thus compounding the problem and fixing their losses.

PT's shares had ease a little by mid afternoon as bargain hunters entered the market but had fallen 15.16% to €1.03 by late afternoon. This was short lived as by the end of today’s trading the shares had slumped to 88.5 cents, a full 27% down in one day.