Oi open to sweeter terms for creditors in debt deal

Oi, the Brazilian telecom operator at the centre of a R$65bn debt default, the largest in the country’s history, is likely to consider more favourable debt-for-equity swap conditions for creditors in talks this week. 

Oi chief executive officer Marco Schroeder said he was hearing creditors were discussing among themselves a proposal to convert some of the estimated R$32bn owed to bondholders into equity immediately and restructure the remainder into 10-year notes rather than accepting three-year convertible bonds as earlier proposed by the company. 

“This could be an important idea because it would allow the company to extend the debt. I would have more than 10 years to pay the debt so that would free me to make investments,” Mr Schroeder said in an interview. 

The comments signal Oi’s shareholders might be willing to offer more flexible terms in the group’s judicial recuperation — Brazil’s equivalent of the Chapter 11 process in the US — after an earlier restructuring proposal from the company outraged creditors. 

Oi, Brazil’s biggest fixed line operator, filed for bankruptcy protection in June under the weight of a series of highly leveraged mergers and acquisitions, a tough regulatory regime and the country’s sinking economy.

Oi offered in September to convert bondholders’ debt into R$10bn in convertible bonds, a roughly 70 per cent creditor haircut. 

Creditors attacked the proposal as offering all the upside to the existing shareholders, who could redeem the bonds at the end of the three years if the company performed well without losing any equity in the group. 

Creditors had originally wanted a debt-for-equity swap of 80-85 per cent of the bonds outstanding, or equivalent to a minimum of their face value of about R$25bn, said one person familiar with the talks. 

But Mr Schroeder hinted at greater flexibility amid concerns among creditors and the government that a long drawn-out negotiation could harm the company. 

Some have even called for the government to intervene. Anatel, the industry regulator, is itself an important creditor and has the ability to interfere in telecom concessions under certain circumstances. 

“It would involve [swapping] a piece of equity now,” Mr Schroeder said of the easier terms for creditors under discussion. “If it is confirmed [the creditors’ alternative restructuring offer], we will analyse this proposal.” 

Brazil’s judicial reorganisation process allows the existing shareholders greater power over the process than they might have in other jurisdictions. 

They remain in control of the company during the process and are responsible for presenting the restructuring plan. 

Aside from the bondholders, Brazilian banks control an estimated R$11bn of Oi’s debt, export credit agencies and foreign banks and other foreign creditors about R$5bn and Anatel and the government up to R$30bn. The exact number of how much it owes Anatel is under dispute. 

In a statement on Friday, advisers for the export credit agencies and other ad hoc foreign creditors, led by FTI Consulting Canada, said they were in talks with one of the bondholder groups represented by advisers Moelis & Company with the involvement of a potential external investor, Naguib Sawiris, the Egyptian billionaire. 

They said an alternative restructuring plan was expected to be presented to Oi by the Sawiris Group “within the next two weeks”. 

But Mr Schroeder said he did not believe a third- party investor was crucial to any solution to the company’s problems. 

“I won’t connect a solution to the debt problem automatically to the appearance of an investor,” Mr Schroeder said. 

Equally important, in his view, was efforts by congress to amend the concession system that governs Oi. 

Considered out of date, the system requires the company to invest in near obsolete technology, such as public phones, with severe fines and penalties for failure to meet the requirements.