The corporate empire of Portugal's Espirito Santo family issued 5 billion euros of new debt in the first six months of 2014, according to people familiar with the matter, just as the clan's businesses were nearing bankruptcy.
The bonds were sold via a complex transatlantic scheme involving companies in Panama and Europe, the people said. Much of the debt ended up with Banco Espirito Santo and its customers, they added, accelerating the financial woes that led to the lender's state bailout earlier this month.
The 11th-hour borrowing gambit uncovered by Reuters is being examined by Portuguese financial regulators who are trying to determine whether it was legally permissible, according to people close to the examination.
It shines new light on the lengths to which Portugal's biggest corporate dynasty went to save their empire from collapse, mixing family affairs with those of the country's then largest listed bank, in which until recently they were the single-largest shareholder.
The collapse of the 145-year-old Espirito Santo group has caused turmoil in international markets and rocked Portugal's political and business world.
Regulators and prosecutors are examining possible fraudulent behavior behind the fall. As part of their investigation, regulators are looking into how the bonds issued in the first six months of the year were packaged, marketed and sold to clients, according to the people familiar with the examination.
Espirito Santo International (ESI), the family's umbrella company, is under court protection and could not be reached for comment. Espirito Santo Financial Group (ESFG), another family company now under court protection, also could not be reached for comment. Novo Banco, the new bank that has been created after Banco Espirito Santo's bailout, declined to comment on the bonds. The bank pointed to previous statements in which it said all retail clients who bought very short-term debt from Espirito Santo companies would be repaid.
The Espirito Santo family's woes became public in May, when it was disclosed that ESI, which is based in Luxembourg, had serious financial difficulties and accounting irregularities in its accounts. ESI in turn owned a stake in ESFG, another Luxembourg-based company that owned a large stake in Banco Espirito Santo.