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PORTEL: Heavy Volumes Support Volatility

16 July 2014 by HCM

Once again Espirito Santo Group and the related entities were the focal point today. It was mainly good news for a change though. BESPL (Banco Espirito Santo SA) could get a €2bln cash injection by 1 or 2 new shareholders: that sent the 5 year risk premium 90bps tighter. Oi and PORTEL (Portugal Telecom SGPS SA) have been quick to react to the likely default of Rio Forte. They announced that the terms of their merger would be amended (with the portion of the merged entity going to PORTEL’s shareholders reduced from 39.6% to 25.6% initially but with the possibility to be revised up according to the recovery of PORTELS’s investment in Rio Forte’s commercial paper), alleviating investors’ fear that it could be called off. That sent PORTEL’s 5 year CDS 40bps tighter. This is one of the biggest moves we have seen on the name since the roll, but 20bps daily changes have been fairly common place since news of the investment in Rio Forte’s debt surfaced at the end of June. Like many peripheral names, the performance of PORTEL’s credit instruments had been impressive to say the least, and complacency probably set in to some extent. Hence the need to make some adjustments to portfolios, and to hedge excessive exposures. Not surprisingly, the DTCC statistics regarding last week’s volumes which were released this morning confirmed that the recent boot of volatility was backed up by a very healthy level of activity.