Telecom Oi Files Largest Bankruptcy Request in Brazil's History
June 20 2016 - 8:40PM
Dow Jones News
SÃ O PAULO—Brazil's troubled telephone company Oi SA on Monday
filed the largest bankruptcy protection request in the country's
history just days after debt restructuring talks with creditors
collapsed.
The filing of Oi and six subsidiaries lists 65.4 billion reais
($19.26 billion) in debt.
In its filing, the company said it chose judicial reorganization
to preserve the value of its holdings and to continue providing
service to its customers.
A person familiar with the bankruptcy filing said it would be
the largest in Brazil's history if it is accepted by the court.
Oi Chief Executive Bayard Gontijo resigned from his post June
10. Although Oi gave no reason for his departure, Mr. Bayard was
under severe pressure from company shareholders who had been
resisting a proposal by creditors to convert a total of 25 billion
Brazilian reais in debt to equity.
That plan would have significantly diluted the company's shares,
giving a 95% stake of the restructured business to its bondholders.
Shareholders balked at the prospect, and the talks fell apart.
Late last week, Fitch Ratings downgraded Oi by two notches to C
from CCC, well below investment grade.
"Oi's current capital structure is unsustainable, and the
company faces an imminent default risk given sizable short-term
debt maturities," Fitch said.
Since 2009, Brazil's fourth-largest telecom company has
accumulated a huge amount of debt to complete two mergers, first
with Brasil Telecom and later with Portuguese company Portugal
Telecom. Those deals failed to generate enough cash flow to fund
the company's investment needs.
Oi has low penetration in the mobile phone and broadband
markets, the most critical and profitable segments of the
telecommunications sector in Brazil.
As of March 31, Oi had reported gross debt of about 50 billion
reais ($14.72 billion), about 38.9 billion reais of which was held
by international bondholders.
The recent debt negotiation has involved Oi's main shareholder,
Bratel BV, which controls a 22.24% stake in the company. Bratel is
an investment vehicle formed by former shareholders of Portugal
Telecom, using the official name Pharol SGPS.
On the other side of the table, investment bank Moelis & Co.
is advising creditors with around 40% of outstanding bonds,
including big international players such as Pacific Investment
Management Co., Citadel LLC and Wellington Management Co.
About a quarter of Oi's debt belongs to commercial banks, such
as Banco Itaú SA, Banco Santander SA, Banco do Brasil SA and Caixa
Econô mica Federal. Another 5% is in the hands of development
banks, such as the Brazilian Development Bank and Banco do Nordeste
do Brasil SA.
Other shareholders include the Ontario Teachers' Pension Plan,
with a 4.77% stake; the equity arm of Brazil's development bank,
known as BNDESPar, with 4.63%; and investment firm BlackRock Inc.,
with 0.96%. Oi has a free float of 49.23%. The rest of the
company's capital is in its own treasury.
During Brazil's commodities boom, Oi was seen as a potential
national champion that could become a global player. But the Rio de
Janeiro-based company failed to compete with international telecoms
in the local arena, in part because it didn't have the same
financial resources.
Brazil's market leader is Telefó nica Brasil SA, also known as
Vivo, which is part of Spain's Telefó nica SA; followed by TIM
Participaç õ es SA, a unit of Telecom Italia SpA; and Claro, the
local unit of Mexico's Amé rica Mó vil SAB de CV.
Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com and
Luciana Magalhaes at Luciana.Magalhaes@dowjones.com
(END) Dow Jones Newswires
June 20, 2016 20:25 ET (00:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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