The saga surrounding troubled Portuguese lender Banco Espirito Santo (BES) took another twist on Wednesday, with the fortunes of a telecoms merger shedding more light on the strength of the country's banking sector.
Portugal Telecom rushed Wednesday to salvage a possible tie-up with Oi, the Brazilian telecoms company, after a possible default by Rioforte, an investment unit of the Espirito Santo group, called the deal into question.
The two telecoms firms said they had signed a "memorandum of understanding", in the hope of keeping the deal alive, and insisted they remained committed to "full completion" of the deal. Shares in Portugal Telecom rose 6.8 percent in morning trade.
Here's a quick look at the latest twist in the Portuguese saga:
Rioforte misses payments
Concerns about a Portugal Telecom-Oi deal arose after Rioforte - a holding company of the Espírito Santo Group, which is responsible for its non-financial investments - missed a debt repayment of 847 million euros ($1.15 billion) on Tuesday evening.
Portugal Telecom bought the debt from Luxembourg-based Rioforte in April and it was held in subsidiaries of Portugal Telecom that were given to Oi in May in anticipation of the deal.
However, both parties have now revised the terms of the merger and the Rioforte debt will be passed back to Portugal Telecom. The company has also said that it would pursue legal and procedural options against Rioforte and related parties to the "full extent of the law" in the hope of securing repayments on the debt.
Read MoreHere's what's happening in Portugal
But Bill Blain, a fixed income strategist at Mint Partners, argued that debt of the various Espirito Santo holding companies was most likely "toast".