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Fitch Launches 'Top 10 Most-Actively Traded LatAm Corporates' with Oi Scenario Analysis
February 2, 2015 / 6:22 PM / 3 years ago

Fitch Launches 'Top 10 Most-Actively Traded LatAm Corporates' with Oi Scenario Analysis

(The following statement was released by the rating agency) CHICAGO, February 02 (Fitch) Fitch Ratings has launched a 10-report series covering 10 of the most actively-traded corporate credits within Latin America with a scenario analysis of Oi S.A.'s (Oi) asset sale and consolidation options. One report will be released each day through Feb. 13 per the schedule found at the bottom of this release. 'Given negative operating trends, Fitch expects Oi's ratings to fall under immediate pressures if the sale of its stake in PT Portugal SGPS, S.A. (PT) falls through and industry consolidation does not take place,' said Alvin Lim, a Director at Fitch. 'A negative rating action could be considered if Oi's net leverage ratio is forecast to remain above 4x over the medium- to long-term without any meaningful improvement in its key operating metrics.' Brazil remains one of the most competitive markets in Latin America, while its mobile market has increasingly become saturated, pressuring average revenue per user growth. A large portion of any growth achieved has been led by Oi's rivals. Any meaningful recovery in Oi's credit profile will largely hinge on the potential PT asset sale. Oi is unlikely to pursue any sizable cash-based acquisition options involving Telecom Italia SpA's (TI) Brazilian subsidiary, TIM Participacoes S.A. (TIM), without this asset disposal, given Oi's precarious debt-laden financial position. Fitch does not believe another round of capital increases is likely and any further sizable debt increase would also be difficult. Based on the assumption that consolidation is driven by the existing domestic operators, Fitch believes that the break-up of TIM among three remaining operators, or an equity-based merger between Oi and TIM, could be the most probable scenarios. The transformation to a three-player market in a crowded Brazil telecom industry would benefit all operators. The financial benefit of a merger between Oi and TIM would be significant, given no cash acquisition cost involved. Fitch believes this would be an attractive option for TI, as Oi's fixed-line network complements TIM's mobile-only operation, enabling a fully integrated service portfolio. However, the regulatory approval could be challenging. A portion of the merged entity's operating assets could be required to be sold as an approval condition. In this scenario, the pro forma net leverage of the merged entity is estimated to be about 2x initially. Fitch's Top 10 Most-Actively Traded LatAm Corporates series will be released one report per day as follows: Feb. 2: Oi Scenario Analysis - Asset Sales and Industry Consolidation are Key to Credit Profile Recovery Feb. 3: Cemex Scenario Analysis - Road to Investment Grade Runs through the U.S. Feb. 4: Ecopetrol Price and FX Sensitivity Analysis - Rating Linkage with Sovereign Could Weaken Feb. 5: America Movil Scenario Analysis - No Separation Anxiety Feb. 6: Vale Scenario Analysis - Ratings Rock Solid Despite Industry Softness Feb. 9: Pacific Rubiales Scenario Analysis - Preserving Liquidity Depletes Reserves Feb. 10: PDVSA - Something's Gotta Give Feb. 11: Cencosud Scenario Analysis - What Factors Could Stabilize the Company's 'BBB-' Rating Feb. 12: Construtora Norberto Odebrecht Scenario Analysis - Could CNO Lose its Investment Grade Rating due to Lava Jato Scandal? Feb. 13: Petrobras - A Political Labyrinth For more information, a special report titled 'Oi, S.A. Scenario Analysis' is available on the Fitch Ratings web site at www.fitchratings.com. Contact: Alvin Lim, CFA Director +1-312-368-3114 Fitch Ratings, Inc. 70 W Madison Street Chicago, IL 60602 Mauro Storino Senior Director +55 21 4503-2625 Joe Bormann, CFA Managing Director +1-312-368-3349 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available at 'www.fitchratings.com'. Applicable Criteria and Related Research: Oi, S.A. Scenario Analysis here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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