PORTUGAL - Portugal Telecom, the country's largest telephone company, has confirmed it is in discussions with the Portuguese government to transfer almost €3bn in pension assets liabilities to the state.

According to its most recent quarterly statement to the end of September, the telecoms company has €2.3bn in assets in its pension plan, €471m in unfunded liabilities for pension obligations and a further €337m stemming from healthcare obligations.

Talks with the government, first confirmed by Portugal Telecom last Friday, revolve around the funding of three of its pension schemes: Plano de Pensões de Pessoal da Portugal Telecom/CGA, the Plano de Pensões Regulamentares da Companhia Portuguesa Rádio Marconi and the Plano de Pensões Marconi.

According to newspaper reports, the government plans to use the funds to address its budget deficit and invest in two submarines.

In a statement, the company said: "Portugal Telecom hereby informs it is in discussions with the Portuguese state regarding the potential transfer ... of the pension liabilities associated with mandatory pension funds that cover part of the current and former employees of Portugal Telecom, as well as the pension funds set up to fund these liabilities."

It added that any unfunded liabilities, calculated on the day of the transfer, would be covered by the company and not the government.

The Portuguese government currently holds less than a 2% stake in the company. But because it holds 500 A shares, it is able to veto major decisions, such as a payment of dividends in excess of 40% net income.

In the past, it has used its shares to avoid a takeover by Spain's Telefónica of Brazilian mobile network provider Viva, in which both companies have a holding. The move was declared unlawful by the European Court of Justice earlier this year.

Telefónica is currently a majority shareholder in Portugal Telecom, along with Norges Bank, BlackRock and UBS, which hold 5.19%, 2.35% and 2% stakes, respectively.