Brazil's Oi Files Recovery Plan to Exit Bankruptcy Protection
September 05 2016 - 10:20PM
Dow Jones News
SÃ O PAULO—Troubled Brazilian telecom Oi SA on Monday filed a
recovery plan to exit bankruptcy protection, but is far from
securing an agreement with its creditors, according to people
directly involved in the talks.
Oi is proposing international bondholders a 70% haircut,
according to the plan. Bondholders would receive new debt with a
face value of about 30% of what they are owed. Those bonds could be
converted to equity in up to 85% of the company's capital if they
aren't redeemed in three years.
It also said it may seek new capital and proposed the sale of
several assets, including real estate and its mobile unit. Some
shareholders, however, don't agree with selling the mobile
unit.
Another major stumbling block is that Oi hasn't discussed this
plan with bondholders, who may reject it outright, according to the
people. Oi was under pressure to meet a court deadline to file its
plan, which in effect, is little more than a placeholder.
"This is not definitive, just few guidelines," said one of Oi´ s
shareholders.
In June, Oi and six subsidiaries filed the largest bankruptcy
protection request in Brazil´ s history, listing around 65.4
billion reais ($19.7 billion) in debt. Oi's total debt includes
15.4 billion reais in liabilities with regulators and tax
authorities. The rest is owed to international bondholders and
local banks.
Oi filed for bankruptcy protection after restructuring talks
between shareholders and creditors failed. Bondholders had insisted
on swapping debt for equity in a transaction that essentially would
have given them control of the company while reducing shareholders'
stake to about 5%. Pharol SGPS, the largest shareholder with a
22.24% of Oi, refused to go along with that plan.
The current deadlock between shareholders and creditors may
reduce Oi´ s chances for survival.
Since 2009, the Brazilian 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. And Oi has a low penetration in the mobile phone and
broadband markets, the most profitable segments of the
telecommunications sector in Brazil.
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.
Oi is Brazil's fourth-largest telecom company in terms of market
share, behind market leader Telefó nica Brasil SA, also known as
Vivo, which is part of Spain's Telefonica SA; TIM Participacoes SA,
a unit of Telecom Italia SpA; and Claro, the local unit of Mexico's
America Movil SAB de CV.
One of the Oi´ s most active shareholders, Brazilian businessman
Nelson Tanure, who is representing several investment funds, wants
to hire local think tank foundation Fundaç ã o Getulio Vargas to
design a new recovery plan for the company.
But it is unclear if Pharol or investment bank Moelis &Co,
which is advising 40% of the bondholders, will go along with the
idea.
"(Oi) is a patient in intensive care," said Alexandre Montes, a
telecom industry analyst at consultancy Lopes Filho Consultores,
based in Rio de Janeiro. "The patient may leave the intensive care
unit, but it could die too."
Write to Rogerio Jelmayer at rogerio.jelmayer@wsj.com and
Luciana Magalhaes at Luciana.Magalhaes@wsj.com
(END) Dow Jones Newswires
September 05, 2016 22:05 ET (02:05 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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