Oi Plunges After Surprise Loss, Dividend Cut: Sao Paulo Mover

Oi SA, Brazil’s most indebted telecommunications company, plunged after it reported an unexpected loss and cut its planned dividend payment.

Voting shares tumbled 8.9 percent to 4.49 reais at the close in Sao Paulo, the worst performance on the Ibovespa equity benchmark, which rose 0.6 percent. Non-voting shares sank 7.4 percent to 4.13 reais.

After hiring Chief Executive Officer Zeinal Bava two months ago, Oi’s board is cutting back on shareholder payouts to turn the company around. The carrier plans to pay 2 billion reais ($865 million) in dividends through 2016, compared with 3 billion reais it had told investors it would dispense in 2014 and 2015.

The new dividend policy “is much more compatible and aligned with the cash-flow profile and the prudent financial approach we want to take in life,” Bava said on a conference call today with analysts. “It’s something that gives the market a floor as to how they should be thinking about dividend in this company in the future.”

Oi’s net loss was 124.2 million reais during the three months ended in June, its first unprofitable quarter since 2009, according to data compiled by Bloomberg. The average estimate of six analysts was for a profit of 186.7 million reais, the data show.

The stock’s decline today “is a reaction to the news on dividends -- phone companies have historically been seen as safe havens by the market,” Joao Pedro Brugger, who helps oversee 330 million reais at Leme Investimentos in Florianopolis, Brazil, said in a telephone interview. “When you change policy on that, the market doesn’t react well.”

Fiscal Austerity

While the cut to payouts demonstrates “fiscal austerity” the Rio de Janeiro-based company’s “high dividend yield was one of the stock’s attractions,” Banco Itau BBA analysts Susana Salaru and Gregorio Tomassi wrote in a note to clients today.

After paying 4 billion reais in dividends since 2012 under a program that promised 8 billion reais in payouts through 2015, Oi canceled an 1 billion-real payment it had scheduled for this year.

Oi’s net debt rose by 2 billion reais from the first quarter to 29.5 billion reais. That pushed its ratio of net debt to earnings to 3.4, leaving out interest, taxes, depreciation and amortization, according to Bradesco BBI.

Provisions for bad debt, used to cover customers who fail to pay their bills, rose 97 percent from a year earlier to 323 million reais, which Bradesco analysts led by Luis Azevedo called “worrying.”

Prudence Needed

Bava said the “current economic environment” was to blame for the higher bad-debt costs.

“If we are looking to reduce bad debts, we need to be even more prudent,” he said. “Credit policies, prices and offers are being revised to bring bad debt to acceptable levels in the near future.”

The expenses are costing the company about 100 million reais a month, a figure Bava said he wants to halve.

“The turnaround will be underpinned by three events: correct the cash-flow-profile business model, more efficiency and growth,” he said.

To contact the reporters on this story: Christiana Sciaudone in Sao Paulo at csciaudone@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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