OI TO FOCUS ON CREDITORS
Many firms without stake in the carrier have proposed injecting capital into Oi in return for equity
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.