Brazilian telco Oi has reportedly mandated PJT Partners and Rothschild to refinance some R$13bn (US$3.34bn) in debt maturing by the end of 2017. Oi’s share price has suffered since Russian investor LetterOne announced that it had pulled out of talks about a potential merger between Oi and Telecom Italia-controlled TIM Brasil.
Brazilian telco Oi (BVMF:OIBR4) has reportedly mandated PJT Partners and Rothschild to refinance some R$13bn (US$3.34bn) in debt maturing by the end of 2017.
Rothschild, which Oi brought in last year to improve its debt profile, will negotiate with local lenders, while PJT will consult with bondholders, Reuters reported, citing two sources familiar with the matter. According to one source, Oi, which has some R$35bn (US$9bn) in net debt, will first attempt to extend the maturities.
Oi, PJT and Rothschild were not immediately available for comment.
Oi’s share price has suffered since Russian investor LetterOne announced late last month that it had pulled out of talks about a potential merger between Oi and Telecom Italia-controlled TIM Brasil. Oi is Brazil’s fixed-line incumbent and third largest operator, while TIM Brasil is the number two mobile player. LetterOne, backed by Russian billionaire Mikhail Fridman, said the Italian incumbent had informed it that it does not wish to enter into further discussions about a merger between the two rival telcos.
On Tuesday, Moody’s downgraded Oi’s corporate family rating (CFR) to Caa1/Caa1.br from Ba3/A3.br and its unsecured debt one notch below the CFR to Caa2/Caa2.br.
“The downgrade was based on the company’s persistently increasing leverage and cash consumption, which has reduced financial flexibility and has led to an untenable capital structure,” the ratings agency said. “We believe that LetterOne’s announcement that it dropped its proposal for a potential transaction involving up to US$4bn in capital injection from LetterOne into Oi will further constrain the company’s liquidity and financial flexibility to invest in capex and spectrum, and its ability to amortise debt.”
Moody’s added that it believes there is a “high risk” of debt restructuring over the next 12 to 18 months, which would likely involve losses to creditors, as there are no signs of another major event, such as a merger or capital injection, that could improve its debt profile.
The agency expects Oi will be able to meet its debt obligations over the next 12 months, but will continue to consume cash through 2017, excluding potential spectrum purchases.
The telco has some R$1bn (US$259m) in debt maturing by the end of this year, R$11.3bn (US$2.9bn) in 2016, and R$9bn (US$2.3bn) in 2017, Moody’s noted, adding that its capex is high at about R$5bn (US$1.3bn) per year and it is not expected to become cash flow positive until at least 2018.
Conversely, Oi’s main rivals, Telefônica Brasil and América Móvil, are well capitalised and investing heavily for growth, the agency said.