Brazil's Oi Creditors Agree to Rescue Plan That Slashes Debt, Injects Cash

By FeaturesDow Jones Newswires

SÃO PAULO -- Brazilian telecommunications company Oi SA., which last year filed Latin America's largest-ever corporate bankruptcy, said Wednesday its creditors approved a rescue plan that would cut its $20 billion debt with a restructuring that could give the creditors up to a 75% stake in the firm.

Oi's lenders and other creditors agreed during a 15-hour meeting in Rio de Janeiro to slash the company's debt and to inject cash to boost investment in newer technology, Oi said Wednesday in a statement.

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Oi's preferred shares closed up 6% at 3.56 reais.

Oi, which emerged from a round of telecommunications privatizations that took place in Brazil in the late 1990s, filed for bankruptcy protection in June 2016 after accumulating billions of dollars in debt to complete two mergers, first with Brasil Telecom and later with Portuguese company Portugal Telecom, which failed to generate sufficient cash to fund its investments needs.

The rescue plan, which still needs a judge's approval, will cut Oi's financial debt to $7.2 billion from around $15 billion. It will also reduce the amount the telecom owes to suppliers, employees and government agencies. The judge is expected to rule on the plan in February.

After the debt is cut, bondholders will have the option to convert the remainder of the money owed to them into shares. If all the convertible debt is exchanged, creditors will end up owning 75% of the company, according to the plan.

"Without this approval, Oi would have gone bankrupt...but I continue to be skeptical of its future," said Alexandre Furtado Montes, an analyst at Rio de Janeiro-based consulting firm Lopes Filho.

He said Oi will need to speed up investment to catch up with competitors, which are "swimming in cash."

Oi Chief Executive Eurico Teles said the company is open to being bought, and that they have already seen interest from Chinese investors.

Oi, a word that means "hi" in colloquial Portuguese, had been seen as a potential national champion that could eventually become a global player. It grew to become Brazil's fourth-largest mobile operator by market share, but failed to keep pace with foreign competitors in Brazil's market because it didn't have the same financial resources.

Aiming to strengthen Oi's capital structure, creditors agreed to infuse the telecom with $1.2 billion in cash and possibly to seek another $760 million from capital markets. The new money will allow Oi to increase planned investments from $1.5 billion a year to $2.1 billion a year over the next three years.

Oi's rescue is still likely to face legal challenges. Brazilian telecoms regulator Anatel is one of Oi's creditors because of the billions of Brazilian reais the company owes Anatel and other government agencies for fines related to regulatory and other infractions. Anatel said Wednesday it opposed the agreement and will try to block it in court. The accord would permit Oi to pay the fines over 20 years, and Anatel claims that installment plan is illegal.

Mr. Teles, who according to the terms of the plan is set to be replaced as CEO in about year, vowed that "Oi will return to occupy a prominent place in the market and to be recognized for the importance it has for the country."

--Jeffrey T. Lewis contributed to this article.

Write to Luciana Magalhaes at luciana.magalhaes@wsj.com

(END) Dow Jones Newswires

December 20, 2017 15:37 ET (20:37 GMT)