(MENAFN- AFP) Portuguese bank Banco Espirito Santo, battling a financial crisis crippling its main shareholder, came under renewed stock market pressure on Thursday after a credit downgrade.
Shares in the bank, which had rallied strongly on Wednesday from record low levels, plunged again in morning trading.
They fell by 6.59 percent to 0.43 euros, shedding ten percent at one point.
The declines pushed down the overall Portuguese stock market, which fell 1.14 percent.
The crisis surrounding the bank arises from a hole in the accounts of one of its main shareholders, holding company Rioforte, and allegations that this Luxembourg-based entity covered up accounting problems.
On Tuesday, Rioforte failed to meet repayment of a debt of 847 million euros ($1.146 billion) to creditor Portugal Telecom. This Thursday another debt to PT of 50 million euros also falls due.
PT has warned that it will take legal action against Rioforte and the banking group to obtain repayment, but Rioforte is expected to seek protection from creditors while it refinances its balance sheet.
The Portuguese central bank has said that shareholders are likely to come forward to provide new funds.
On Wednesday, shares in Banco Espirito Santo (BES) had jumped 19.74 percent to 0.45 euros, but late in the day credit rating agency Standard and Poor's downgraded the bank's long-term debt to a notation of "B-".
On Friday, the agency had already downgraded the bank by a full notch. The latest decision means that the bank's debt has gone deeper into non-investment grade, or "junk" status, and has a negative outlook which means the agency could downgrade it further.
Another negative factor for BES shares was the expiry late on Wednesday of a ban on the short-selling of the stock, meaning that traders may now sell BES shares which they do not yet own in the belief that the price will fall further before the contract has to be honoured.
Portugal Telecom has suffered a second setback from the non-payment, since it had to renegotiate on Wednesday a tie-up agreement with Brazilian telecom operator Oi.
Under the new terms, PT will take on responsibility for the unpaid debt, which was to have been shouldered by Oi, and its share in the new entity will fall from 38.0 percent to 25.6 percent.
Shares in PT also fell back on Thursday, shedding 1.90 percent to 1.85 euros, after rallying 3.28 percent to 1.89 euros on Wednesday.
PT shares have fallen by about 35 percent since the existence of the loan to Rioforte came to light on June 26.
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