BTG-Led Group Removes Firm Guarantee From Oi Share Sale

Grupo BTG Pactual SA and 13 banks managing Oi (OIBR4) SA’s stock offering, part of a capital increase of as much as 24.2 billion reais ($10.6 billion), will no longer commit to buying the shares should investor demand fall short.

BTG decided to carry out the offering on a best efforts basis after some banks in the deal said they may pull out if required to offer firm guarantees, according to a person with direct knowledge of the transaction who asked not to be identified because the discussions were private. The offering is part of Oi’s plan to merge with Portugal Telecom SGPS SA.

Oi preferred shares fell as much as 3.6 percent in Sao Paulo before paring losses to 1 percent to 3.05 reais at 10:35am. The Brazil’s Ibovespa index was little changed. Portugal Telecom rose 1.6 percent to 3.116 euros in Lisbon.

The change in terms, published today, followed a request from the Brazilian securities regulator to clarify whether the underwriters were fully committed to buying all shares or not. Under the original terms, the banks said they offered firm guarantees to the deal while setting minimum investor demand conditions for that to happen.

Citigroup Inc. (C), Itau Unibanco Holding SA, Banco Bradesco SA and Goldman Sachs Group Inc. were among banks considering dropping out of a plan to underwrite Oi shares after BTG approached them to renegotiate the terms following the regulator’s request, according to two people familiar with the matter this week. The banks decided to remain in the offering.

“We were always skeptical about the early reports of those guarantees,” Walter Piecyk, a telecommunications analyst in New York with BTIG LLC, said in a e-mail response to questions. “The information that the company released never appeared to confirm that they actually existed so it's hard for me to comment on the removal of something that was not clear ever existed to me.”

150% Gain?

Oi, based in Rio de Janeiro, confirmed in a statement the removal of firm guarantee terms for the sale and declined to comment beyond that.

Oi plans to sell 5.75 billion shares, with the possibility of an additional offering of 20 percent and an overallotment of 15 percent, according to a statement yesterday. Based on yesterday’s closing prices, the sale could reach 24.2 billion reais, including the additional offering and overallotment.

If the merger is completed, Oi shares may gain about 150 percent in the next 12 months to 18 months and Portugal Telecom could rise 90 percent, according to estimates by Sanford C. Bernstein analysts led by Robin Bienenstock in an April 2 research report. Oi share prices imply a 90 percent probability that the merger and capital increase will fall through, according to the report.

The deal will price April 28, according to today’s statement.

O Estado de S.Paulo newspaper reported the new terms of the Oi offering in today’s edition.

To contact the reporters on this story: Cristiane Lucchesi in Sao Paulo at clucchesi5@bloomberg.net; Christiana Sciaudone in Sao Paulo at csciaudone@bloomberg.net

To contact the editors responsible for this story: Christine Harper at charper@bloomberg.net Adriana Arai, Steve Dickson

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