Oi Rating Downgraded by Moody’s on Competition, Regulation

Oi SA (OIBR4)’s credit rating was lowered by Moody’s Investors Service, which said intensifying competition and regulatory pressure will delay attempts by Brazil’s largest phone company to reduce debt.

Moody’s reduced Oi one level to Baa3, the lowest investment-grade rating, according to a statement yesterday. Standard & Poor’s has had a similar rating of BBB- on Rio de Janeiro-based Oi since at least September 2011, according to data compiled by Bloomberg.

Brazil’s market is so competitive that any savings Oi gets from lower operating costs must immediately be passed on to consumers, Moody’s said. The government is pushing carriers to invest more to improve service and expand their networks, sapping cash flow, the ratings company said.

“Oi’s ability to deleverage significantly in the near term will be limited,” Nymia Almeida, a Moody’s analyst, said in the statement.

Oi fell 2.5 percent to 8.14 reais at the close in Sao Paulo. The shares have dropped 25 percent this year.

The company’s board approved a plan Oct. 24 to open a credit line of 5.4 billion reais ($2.7 billion) with state development bank BNDES to finance its network investments through 2014, according to a filing yesterday in Brazil.

Oi’s press office declined to comment on the downgrade.

To contact the reporter on this story: Crayton Harrison in Mexico City at tharrison5@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net

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