- Company said to discuss idea with international bondholders
- Final proposal including haircut seen completed this month
Oi SA, the most indebted phone operator in Brazil, is in talks with bondholders to convert a portion of its $17 billion in debt into equity, according to two people with knowledge of the matter.
The idea is being considered because the Rio de Janeiro-based carrier sees no other way to avoid default given its high level of leverage, the people said, asking not to be identified because the discussions are private. Bondholders represented by Moelis & Co. are weighing whether to accept the proposal, which could offer gains in the future if Oi succeeds in selling part of its assets to competitors, the people said. A final proposal, including the terms of the transaction, will be hammered out this month, the people said.
Oi’s press office declined to comment.
Oi, whose name means “hi” in Portuguese, is the fourth-biggest mobile-phone operator in Brazil. It also operates part of the country’s landline phone system, which has proven onerous -- the company has a legal commitment to expand and maintain the obsolete network. It had about 5 billion reais ($1.4 billion) of interest expenses in 2015, far more than the roughly 2.7 billion reais of operating income it had available to pay those costs, according to data compiled by Bloomberg.
The telecommunications carrier said last month it hired PJT Partners Inc. for advice on how to manage its debt, and the company announced an agreement April 25 to begin talks with the group represented by Moelis, aiming to quickly complete a restructuring process. Customers won’t be affected by the restructuring process, the phone carrier has said.
Oi’s total debt represented more than four times its equity as of the end of last year, compared with 47 percent for rival Tim Participacoes SA and 15 percent at Telefonica Brasil SA, according to data compiled by Bloomberg.