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UPDATE 3-Brazil's Oi creditors shun debt plan, warn of lengthy feud
October 13, 2017 / 3:24 PM / in 10 days

UPDATE 3-Brazil's Oi creditors shun debt plan, warn of lengthy feud

(Updates with comments from Société Mondiale)

By Guillermo Parra-Bernal and Bruno Federowski

SAO PAULO, Oct 13 (Reuters) - Oi SA’s revamped restructuring plan fails to address most creditor concerns and may unleash a legal battle or government intervention to avert a collapse of Brazil’s No. 4 mobile phone carrier, two people with knowledge of the matter said on Friday.

According to the people, the plan approved by Oi’s board on Wednesday contains conflicts of interest and gives too much control to Société Mondiale FIA, which despite having 6.5 percent of Oi’s voting capital has amassed great power. Société Mondiale is controlled by Brazilian businessman Nelson Tanure.

Earlier on Friday, Oi’s largest bondholder groups and export credit agencies rejected the carrier’s management-proposed restructuring plan, saying it “ignores fundamental creditor concerns, threatens the company’s long-term viability and abusively enriches existing shareholders.”

The people, who are familiar with government and private-sector creditor strategies, reckon the only feasible solutions for Oi seem to be a state seizure of the carrier’s licenses or a protracted legal battle. Friday’s statement laid bare creditor animosity for Tanure, an investor with a mixed and litigious track record in past restructurings.

Tanure’s Société Mondiale fought back against the creditors’ criticism in an emailed statement, calling their demands “vulturine, unreasonable and greedy” and accusing them of making a hostage out of the Brazilian government.

“The vulture funds have never had any commitment to the country or its companies; they are destroyers of wealth,” Société Mondiale’s statement said, noting that bondholders “are worried about their own short-term interests, not with Oi’s future.”

Common shares in Oi rose the most since April, adding 14 percent, in a sign investors expect Tanure and other large shareholders to fight any dilution attempt from creditors at a Oct. 23 recovery plan vote. Preferred shares soared nearly 23 percent.

Oi’s revamped plan aims to restructure 65.4 billion reais ($21 billion) of debt, including a 9 billion-real capital increase. Under the proposed terms, Oi would sell 6 billion reais of new shares to current bondholders and other investors and swap some debt for no more than 25 percent of capital.

The steering committees of Oi’s two largest bondholder groups and the credit agencies in August put together an alternative proposal to exchange up to 26.1 billion reais of their debt into common shares, representing 88 percent of Oi’s capital.

Analysts at Itaú BBA led by Susana Salaru estimated that Oi management’s proposed capital hike would represent a premium of 42 percent over current prices, while imposing a 73 percent loss on bondholders.

“The equity upside potential is thus directly associated with the capital increase materializing, and we have limited visibility on that, given the high price premium,” Salaru wrote.

INTERVENTION

Oi’s in-court reorganization, the nation’s largest ever, has been marked by disputes between management, bondholders and regulators. Local media reports have repeatedly raised the possibility that the federal government could intervene to avoid a messy bankruptcy.

In Brazil, shareholders have the right to help shape and vote on restructuring plans, unlike the United States, where they come last and may not have voting rights at all.

“Under Tanure’s auspices, Oi has engaged in spurious talks with conflicted creditors who also hold Oi’s shares, in order to preserve value for existing shareholders,” said one of the people, who requested anonymity to discuss the matter freely.

Newspaper Valor Econômico on Friday said that two European export-credit agencies emailed four of President Michel Temer’s cabinet ministers to complain that the restructuring plan benefits only current shareholders. (Editing by Bernadette Baum and James Dalgleish)

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