«On August 7, 2014, Portugal Telecom, SGPS, S.A. (“PT SGPS”) communicated to the market that its Board of Directors had directly engaged ...»
Announcement | Lisbon | 8 January 2015
Results of PriceWaterhouseCoopers Analysis
Reports drafted by PwC Portugal at the request of the Board of Directors of Portugal Telecom, SGPS, S.A.
On August 7, 2014, Portugal Telecom, SGPS, S.A. (“PT SGPS”) communicated to the market that its Board of Directors
had directly engaged PriceWaterhouseCoopers (“PwC”) to perform an independent analysis of the procedures and
actions relating to treasury applications in companies of the Espírito Santo Group (“GES”), up to the current date, and to perform a broad analysis of all relevant aspects pertaining to the treasury applications in companies of the Espírito Santo Group.
Additionally, the work pertaining to the analysis of the shareholding structure ESI / Rio Forte, described in chapter II hereunder, resulted from a later request from the Board of Directors, to engage PwC on October 22 2014.
PwC has concluded its analysis, and the summary of the information based on the report from PwC and information previously disclosed to the market, as per CMVM’s recommendations.
Portugal Telecom, SGPS, SA Public company Portugal Telecom is listed on the Nuno Vieira Share capital Euro 26,895,375 Euronext and New York Stock Avenida Fontes Pereira de Melo, 40 Investor Relations Director Registered in the Commercial Exchange. Information may be 1069-300 Lisbon email@example.com Registry Office of Lisbon accessed on the Reuters under the Portugal Tel.: +351 21 500 1701 and Corporation no. 503 215 058 symbols PTC.LS and PT and on Fax: +351 21 500 0800 Bloomberg under the symbol PTC PL.
SUMMARY OF PwC’S ANALYSIS OF ALL RELEVANT ASPECTS RELATED TO
THE TREASURY APPLICATIONS IN COMPANIES OF THE ESPÍRITO SANTOGROUP.
CHAPTER I – CHRONOLOGY OF THE FACTS REGARDING TREASURYAPPLICATIONS IN GES ENTITIES
CHAPTER II – FACTUAL ANALYSIS OF THE TREASURY INVESTMENTS INBES/GES
SCOPE AND APPROACH
Significant considerations regarding the scope of the analysis.................. 16 PRINCIPAL IDENTIFIED MATTERS
Investments in GES bonds
Service order for the delegation of powers
Service order on related parties (Service Order 111)
Credit risk management policy
“Financial statement” reports
Tableaux de Bord
Principal responsibilities of the organizational/statutory bodies and officers in 2014
CHAPTER III (REPORT 2) – SHAREHOLDING STRUCTURE OF ESI / RIOFORTE
scope and conclusions
CHAPTER IV (REPORT 3) Summary of the scope of work and conclusions of PWC based on its analysis of internal control procedures of the PT SGPS Group with respect to Treasury Management:
SCOPE OF WORK:
CHAPTER V (Report 4) – Summary of the scope of work and conclusions of PWC based on its analysis of the risk management and Internal Audit planning models of the PT SGPS Group with respect to short-term investments:
SCOPE OF WORK:
IMPORTANT NOTE: This document is a free translation only. Due to the complexities of language translation, translations are not always precise. The original document was prepared in Portuguese, and in case of any divergence, discrepancy or difference between this version and the Portuguese version, the Portuguese version shall prevail. The Portuguese version is the only valid and complete version and shall prevail for any and all purposes. There is no assurance as to the accuracy, reliability or completeness of the translation. Any person reading this translation and relying on it should do so at his or her own risk.
CHAPTER I – CHRONOLOGY OF THE FACTS REGARDING TREASURY
APPLICATIONS IN GES ENTITIESApril 5, 2000 Establishment of a strategic partnership between PT, GBES and CGD for the purpose of reinforcing their competitive positions in the area of the “New Economy.” Within the scope of this strategic partnership, GBES and CGD agreed to consider PT their preferential supplier of telecommunications services, and, in turn, PT agreed to consider GBES and CGD its preferential suppliers of financial products and services.
Beginning of the PT Group’s exposure to GES’s securities. As of December 31, 2001, the exposure to GES had reached €600.2 million. Throughout the years, this exposure reached a maximum amount of €1,218 million in 2005, and was €897 million as of July 2014.
Creation of Tableaux de Bord, which reflected the PT Group’s financial position at a certain point in time. Until the Tableaux de Bord which were presented to the Executive Committee on July 2, 2014 by the CFO Eng. Luís Pacheco de Melo, the correct description of the issuer of the bonds (ESI/Rio Forte) was never indicated.
The Tableaux de Bord were approved by the Executive Committee, although they were not regularly presented.
December 1, 2004 Implementation of Service Order 2504, which provides for the delegation of powers conferred on the Executive Committee by the Board of Directors to specifically designated individual members. Under Item 206 of Annex II of this Service Order, the Chairman of the Executive Committee, the Executive Administrator responsible for the finance area and the Director of Corporate Finance have the authority to invest surplus treasury amounts, by any method that is legally permitted, with maturities not in excess of 180 days, and with no maximum amount.
December 23, 2004 By means of Order DE 043504CE, the Executive Committee of PT SGPS decided to approve the implementation of a centralized treasury management model applicable to all companies of the PT Group in Portugal.
June 22, 2007 Approval on June 22, 2007 of changes in the bylaws that created an Audit Committee in the governance structure of PT SGPS.
February 2008 to September 2010 There were no investments by the PT Group in bonds issued by GES.
Since 2007, the Audit Committee receives, at its request, a “Financial Statement” Report from the Finance Department, which serves as the basis for their quarterly Opinion.
The structure of the Report designed by the Audit Committee (which is standard up to the current date) had and has a chapter 4, entitled “Unusual or Relevant Transactions” during the period. Financial applications made in GES/BES bonds were never reported in this chapter.
December 17, 2010 Implementation of Service Order 409, which defines procedures and internal control mechanisms that seek to ensure the correct identification, approval and disclosure of transactions with related parties. With the exceptions contemplated by the Service Order, transactions with related parties should be approved by the Board of Directors based on a prior opinion issued by the Audit Committee. Financial applications are not within the scope of the procedures described above, due to an explicit exception contained in the Service Order in question.
On February 23, 2011, Service Order 111 is implemented, and is still currently in force (and which revokes Service Order 409), maintaining the exemption from approval by the Board of Directors and a favorable prior opinion of the Audit Committee for all financial applications with related parties, as long as they are undertaken on market terms.
June 21, 2010 Sale of interest in Vivo to Telefonica for €7,500 million.
July 28, 2010 Joint venture with Oi, which implied an investment of up to €3,700 million.
The Corporate Governance Committee proposes that certain deliberations by the Board of Directors, namely with respect to financial transactions carried out by the PT Group above a certain amount (provisionally specified in the analyzed proposal), would require a prior opinion of the Corporate Governance Committee. This proposal was never submitted for approval by the Board of Directors.
May 3, 2013 PT SGPS, as sole shareholder of PT Finance, approves the issuance of notes in the aggregate amount of €1,000 million at a fixed rate of 4.625% and maturing on May 8, 2020. Part of this financing, in the aggregate amount of €500 million, was used to purchase notes issued by ESI.
May 2013 Increase in the exposure to ESI bonds from €510 million to €750 million, on the same day on which an aggregate amount of €1,000 million from the issuance approved on May 3, 2013 was deposited in the account.
June 4, 2013 PT SGPS informs the market that Eng. Zeinal Bava has been appointed executive president of Oi and that Mr. Henrique Granadeiro would combine the positions of Chairman of the Board of Directors and CEO of PT SGPS.
PT SGPS also disclosed that Eng. Zeinal Bava, as Chairman of the Board of Directors of PT Portugal, will focus on strategic and innovation projects and on joint workstreams of Oi/PT.
Finally, PT SGPS disclosed that Eng. Pacheco de Melo, as a member of the Executive Committee of PT and CFO of the PT Group, would be elected Vice President of PT Portugal.
October 1, 2013 PT SGPS and Oi (together with holding companies above Oi) signed an MoU which defined the basic principles with respect to a proposed combination of the businesses of PT SGPS, Oi and the Oi holding companies with a view to creating a single, integrated, listed Brazilian company. The MoU stated that PT would contribute in Oi’s share capital increase the “PT Assets,” with an estimated minimum value of €1,900 million and a maximum value of €2,100 million.
December 31, 2013 Acquisition, by Rio Forte, of ES Irmãos, which in turn held 10.03% of ESFG.
This transaction was not disclosed by the parties involved, in particular in terms of its price.
January 22, 2014 Date of the acquisition of control of ESFG by Rio Forte by the execution of a private agreement signed on December 31, 2013.
This transaction was not disclosed in terms of its price.
January 28, 2014 Meeting at BES between the CFO of PT SGPS, Eng. Luis Pacheco de Melo, and the CEO of BES, Mr. Ricardo Salgado, requested by the latter for the introduction of Rio Forte. It was explained that the PT Group should begin investing in commercial paper issued by Rio Forte, as opposed to bonds issued by ESI. A presentation regarding the restructuring of GES was delivered, which made no reference to the effects on Rio Forte’s financial situation of the transactions described in “December 31, 2013” and “January 22, 2014.” Between February 10, and February 21, 2014 Redemption of the securities issued by ESI, in the amount of €750 million.
Subscription of commercial paper issued by Rio Forte in the amount of €897 million.
The increase of exposure to GES from €750 million to €897 million was carried out by means of the transfer of term deposits at BES by the total amount of the increase (€147 million).
The maturities of the financial applications were reduced, compared to the past, from an average of 90 days to an average of 60 days, maturing on April 15 and 17 of 2014.
February 20, 2014 The Consolidated Report of PT SGPS for the year ended December 31, 2013 was published, which, in Note 24 – Short Term Investments, included debt securities in the aggregate amount of €750 million, with the following comment: “This caption includes primarily debt securities issued by PT Finance and Portugal Telecom that had an average maturity of approximately 2 months and were settled in 2014 at nominal value plus accrued interest.” This note included an inaccuracy, since the securities were not “issued” by PT Finance and by PT SGPS but rather subscribed by these companies. Additionally, the note was incomplete, since it did not identify the issuers of the securities. In an Announcement issued on August 25, 2014, PT SGPS disclosed, at the request of the Portuguese Securities Commission (Comissão do Mercado de Valores Mobiliários), supplemental information with respect to its report and consolidated financial statements for fiscal year 2013, in which, among other matters, PT SGPS clarified that the debt securities in the amount of €750 million were subscribed by PT Finance and by PT SGPS (not “issued,” as was originally stated in the Consolidated Report), and that they were issued by ESI.
March 25, 2014 Deliberation by the Executive Committee of PT SGPS on the transfer of centralized treasury management from PT SGPS to PT Portugal as a consequence of the ongoing business combination process. As a result, treasury surpluses would then be controlled by PT Portugal.
March 26, 2014 Meeting at BES among the CFO of PT SGPS, Eng. Luís Pacheco de Melo, Mr. Carlos Cruz, Financial Director of PT SGPS, and the CFO of BES, Mr. Amílcar Morais Pires, about the continuation of the existing investments in commercial paper issued by Rio Forte.
Eng. Luis Pacheco de Melo states that the meeting was held at the request of Mr.
Mr. Amílcar Morais Pires states that the meeting was held at the request of Mr.
Ricardo Salgado and also that Mr. Salgado had stated that everything regarding this matter, in its essentials, had already been agreed among himself, Mr. Henrique Granadeiro and Eng. Zeinal Bava.
March 27 2014 Shareholders of PT resolved at a General Meeting to accept the participation of PT in the share capital increase of Oi, S.A. (“Oi”).
April 15 and April 17, 2014 Renewal of PT SGPS and PT Finance’s investments in Rio Forte’s commercial paper in the aggregate amount of €897 million.