Oi Bonds Gain on Speculation Capital Injection Will Go Through

  • Doubts about deal were fueled by arrest of BTG's ex-CEO
  • BTG was hired as an adviser on ways to fortify company

Bonds issued by Oi SA gained for the first time in eight days on speculation that a plan for a capital injection may go through even as the carrier’s adviser on the possible deal, Banco BTG Pactual SA, falls into disarray after its founder’s arrest

The $1.5 billion of notes due in 2020 from Brazil’s fourth-largest mobile-phone service provider rose 2 cents to 55.71 cents on the dollar Thursday after plunging 21 percent since BTG’s billionaire former chief executive officer was arrested as part of a corruption investigation on Nov. 25.

His bank had been seeking to orchestrate a $4 billion capital injection for Oi from Russian billionaire Mikhail Fridman, and investors were concerned that the disarray at BTG will delay or scuttle the plan. The bonds recovered Thursday after Reuters reported, citing people it didn’t identify, that Cerberus Capital had shown interest in BTG’s effort to find a partner for Oi.

"Oi depends a lot on the outcome of this deal, the company needs it," said Klaus Spielkamp, the Miami-based head of fixed income at brokerage Bulltick.

Oi, Brazil’s most-indebted wireless carrier, hired BTG in August 2014 to work on ways to fortify the business as consolidation in the Latin American phone market heats up. In October, Fridman’s investment company, LetterOne, proposed in a letter to BTG that it would inject the cash into Oi and merge it with Tim Participacoes SA, Brazil’s second-largest wireless provider. Oi’s benchmark notes surged as much as 15 percent.

Oi’s benchmark bonds rallied to as high as 73.6 cents after the capital-injection plan was announced. BTG’s former CEO and chairman, AndreEsteves, was arrested for allegedly obstructing an investigation into state-owned Petroleo Brasileiro SA, which is at the center of a wide-ranging corruption probe.

Oi and LetterOne’s press offices declined to comment on the bond performance, Esteves’s arrest and the development of the deal. Both BTG Pactual and Cerberus’s press offices also declined to comment.

Oi and LetterOne were working to have a "feasible proposal for Tim sooner rather than later," Oi Chief Executive Officer Bayard Contigo said in a conference call Nov. 12. Both companies agreed to start exclusive talks for a deal for seven months starting Oct. 30.

The telecom company reported last month a net loss of 1 billion reais ($265 million) for the third quarter, the most since 2010. On Oct. 6, Moody’s Investors Service cut Oi’s rating to Ba3, three levels below investment grade, with a negative outlook. Consumer demand in Brazil has slumped as the economy heads to its worst recession since the 1930s amid the fastest inflation in more than a decade.

"There is a component of spillover from BTG Pactual, but also the macro deterioration of Brazil and the deterioration of the corporate sector," said Jorge Piedrahita, the chief executive officer of broker-dealer Torino Capital in New York. The situation with BTG "has the potential to delay the whole deal with LetterOne."

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