OI TO FO­CUS ON CRED­I­TORS

Many firms with­out stake in the car­rier have pro­posed in­ject­ing cap­i­tal into Oi in re­turn for eq­uity

The Gulf Today - Business - - FRONTPAGE -

SAO PAULO: Debt-laden Brazil­ian tele­coms provider Oi SA could ben­e­fit from a third-party cap­i­tal in­jec­tion, but the com­pany should fo­cus on talks be­tween cred­i­tors and share­hold­ers be­fore en­gag­ing new strate­gic in­vestors, its chief ex­ec­u­tive said.

In an in­ter­view re­gard­ing third-quar­ter re­sults, CEO Marco Schroeder said he thought it was “ex­tremely im­por­tant” that a longde­layed cred­i­tors meet­ing be held on Dec. 7 even if cred­i­tors and share­hold­ers had not reached an agree­ment.

In the re­sults, Oi re­ported a net profit of 8 mil­lion reais ($2 mil­lion) in the third quar­ter, com­pared with a net loss of 1.214 bil­lion reais a year ear­lier, as a stronger cur­rency re­duced the bur­den of its dol­lar­de­nom­i­nated debts.

Oi, Brazil’s fourth largest car­rier, filed for Latin Amer­ica’s largest ever bank­ruptcy pro­tec­tion process last year to re­struc­ture 65 bil­lion reais in debt.

Many firms with­out a sig­nif­i­cant stake in the car­rier have pro­posed in­ject­ing cap­i­tal into Oi in re­turn for eq­uity, with TPG Cap­i­tal Man­age­ment LP and state-run China Tele­com Corp Ltd be­ing the lat­est to do so.

“I think it’s not a good mo­ment to have this con­ver­sa­tion,” Schroeder said. “We have to over­come the mat­ter of the re­cov­ery plan be­fore re­ally en­gag­ing more in­tensely with those groups.”

The next dead­line for the re­cov­ery plan is a vote at the Dec. 7 cred­i­tors assem­bly.

“I think it’s ex­tremely im­por­tant to hold the cred­i­tors meet­ing on Dec. 7, even if it’s not con­clu­sive,” he said. “Peo­ple start to talk, they start to put their ideas forth.”

If the meet­ing does take place, and cred­i­tors vote against the plan, Oi runs the risk of be­ing liq­ui­dated. Still, Schroeder said that pos­si­bil­ity is “prac­ti­cally non-ex­is­tent” as pri­vate bond­hold­ers would lose al­most ev­ery­thing in that sce­nario.

Oi’s third-quar­ter net profit, fol­low­ing a string of quar­terly losses over the past two years, was helped heav­ily by cur­rency ef­fects. Al­most $9 bil­lion of Oi’s debt is dom­i­nated in US dol­lars, which lost ground against the Brazil­ian real last quar­ter.

Oi also kept up a cost-cut­ting drive. Quar­terly op­er­at­ing ex­pen­di­tures dropped 7.2 per cent from the same pe­riod a year ear­lier to 4.321 bil­lion reais, and op­er­at­ing ex­penses year-to-date have dropped 1.5 bil­lion reais.

Still, earn­ings be­fore in­ter­est, de­pre­ci­a­tion, taxes, and amor­ti­za­tion (EBITDA) fell 2.4 per cent to 1.605 bil­lion reais, un­der­scor­ing the need fresh cap­i­tal to keep Oi com­pet­i­tive.

Mean­while the Brazil­ian phone car­rier Oi SA faced two set­backs from the gov­ern­ment on Oct.23 in its ef­forts to pull off the coun­try’s big­gest-ever in-court debt re­struc­tur­ing.

Brazil­ian tele­coms reg­u­la­tor Ana­tel re­jected the com­pany’s re­quest to swap bil­lions of reais in reg­u­la­tory fines for new in­vest­ments.

Ana­tel said in a state­ment that the “un­sat­is­fac­tory” progress of Oi’s re­or­gan­i­sa­tion, now in its 16th month, raised doubts about the com­pany’s abil­ity to hon­our in­vest­ment com­mit­ments re­sult­ing from a fine-for-in­vest­ment swap.

Later on Mon­day, the pres­i­dent of Brazil­ian na­tional de­vel­op­ment bank BNDES, Paulo Ra­bello de Cas­tro, said Oi’s re­struc­tur­ing plan was in­suf­fi­cient. The com­pany owes BNDES 3.3 bil­lion reais ($1 bil­lion).

“I can­not even as­sess what has been pre­sented. Only in Brazil can this (Oi’s pro­posal) be called a plan. I don’t think we have a plan,” Ra­bello de Cas­tro said at a pulp and pa­per in­dus­try event in Sao Paulo.

He said the bank was pre­pared to take a “ra­tio­nal eco­nomic” stance to help Oi re­cover from bank­ruptcy, but gave no de­tails.

In a sec­ond se­cu­ri­ties fil­ing, Oi in­formed share­hold­ers it was in talks with in­di­vid­ual cred­i­tors who are not mem­bers of the steer­ing com­mit­tees of in­ter­na­tional bond­hold­ers on a po­ten­tial re­struc­tur­ing by means of a cap­i­tal in­crease.

At an Oct. 19, meet­ing no agree­ment was reached, Oi said, adding that ne­go­ti­a­tions may con­tinue in the fu­ture but there was no as­sur­ance that they will re­sult in a deal.

The pro­posal dis­cussed was aimed at seek­ing ap­proval for a cash cap­i­tal in­crease of more than 3.5 bil­lion reais, the fil­ing is­sued by Chief Fi­nan­cial Of­fi­cer Car­los Au­gusto Bran­dao said.

Oi, formerly known as Tele­mar, is the largest telecom­mu­ni­ca­tions com­pany in Brazil and South Amer­ica, both in terms of sub­scribers and rev­enues. It is head­quar­tered in Rio de Janeiro. Oi’s ma­jor sub­sidiaries in­clude Tele­mar and Brasil Tele­com.

At the end of 2013 Oi had 74.5 mil­lion sub­scribers, in­clud­ing 16.9 mil­lion for land­line, 50.3 mil­lion for wire­less, 5.3 mil­lion for ADSL, and 1 mil­lion for other ser­vices.

Debt-laden Oi SA could ben­e­fit from a third-party cap­i­tal in­jec­tion.

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