Brazil's Oi Files Recovery Plan to Exit Bankruptcy Protection

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 [e-mail] and Luciana Magalhaes at [e-mail]

(END) Dow Jones Newswires

September 05, 2016 22:05 ET (02:05 GMT)

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