Oi Reports Wider Loss as Mobile Customers Flee for Rivals

  • Net loss of 1.64 reais surpasses 880.7 million projections
  • Brazil’s smallest mobile carrier mired in debt troubles

Oi SA, Brazil’s most indebted phone operator, reported a wider-than-expected loss in the first quarter as customers defected and debt-related expenses soared amid the country’s deepening economic and political crisis.

Oi posted a net loss of 1.64 billion reais ($469.9 million), according to a statement Thursday. That compares with a 880.7 million reais loss projected by analysts, the average of three estimates compiled by Bloomberg. Revenue fell 4 percent to 6.76 billion reais from a year earlier and compares with estimates for 6.6 billion reais.

The preferred shares fell as much as 3.7 percent in Sao Paulo and were down 1.9 percent to 1.05 real at 1:00 p.m.

The results are setback to a company already suffering from a heavy debt load and legal obligations to maintain an obsolete landline phone network across Brazil.

Oi said earlier this year it hired PJT Partners to advise it on how to manage its debt, which totaled 49.4 billion reais at the end of the first quarter, down from 55 billion reais in the previous quarter. Almost 80 percent of that was in foreign currencies, the company said in the statement. 

As for cash, Oi had 8.53 billion reais on hand. The carrier now has two available credit lines for 2.39 billion reais, Chief Executive Officer Bayard Gontijo said during a conference call with investors Thursday.

To speed up what could be the biggest debt-restructuring plan in Brazil’s history, Gontijo said the company prefers to work with only one adviser to debtholders. Oi has entered into a non-disclosure agreement with Moelis & Co., which is advising a group of bondholders.

On Thursday, Aurelius Capital Management LP increased the pressure on Oi, claiming a financing unit of the carrier -- Portugal Telecom International Finance NV, or PTIF -- “has failed to comply with” a number of clauses in the bond indenture, thus “resulting in a potential event of default” after May 29.

The company took a 1.9 billion reais hit in the first quarter mainly from including PTIF’s debt on its balance sheet. Last year Altice SA acquired Oi’s PT Portugal. In the first quarter of 2015, PTIF was listed as “discontinued operations” and not included in consolidated debt. 

Subscriber Woes

Oi’s entire customer base -- residential phone, Internet, pay-TV and prepaid and postpaid wireless -- shrank in the first quarter. The company responded by offering new packages of services that helped increase the average revenue per residential user to 80.80 reais, 4.2 percent higher than the year-ago quarter. And the subscriber base for these new plans is growing, Bayard said.

Bayard declined to provide guidance for 2016 capital spending but said Oi will focus investments on improving the mobile network and expanding coverage for users.

Anatel, Brazil’s telecommunications regulator, could soon approve a plan to convert about 5 billion reais in fines into network investments over four years, he added. That decision would be the first stage in a loosening of phone regulations in Brazil, benefiting Oi.

Meanwhile, the company is cutting 2,000 employees, or 10 percent of its workforce, to reduce costs, according to a person familiar to the matter.

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