Oi Tumbles as Executive Departures Rekindle Dividend Concern

Oi SA fell the most in three months as the departure of its finance and operations heads two weeks after Zeinal Bava took over as chief executive officer stoked concern that the Brazilian phone company will cut dividends.

Oi’s non-voting shares dropped 10 percent to 3.57 reais at the close of trading in Sao Paulo, the steepest one-day decline since March 22. The Ibovespa stock benchmark retreated 2.4 percent.

Chief Financial Officer Alex Zornig and Chief Operating Officer James Meaney have left the company, Oi said in a regulatory filing after the close of trading yesterday. The departures come as Bava faces pressure to deliver 2 billion reais ($884 million) in dividends that the company has pledged this year.

The shakeup appears to represent the end of Oi’s strategic plan announced more than a year ago, and the company “will likely revise its guidance, investment plan and dividend policy, probably leading the company to cut its dividends plan and prioritize capex and deleveraging,” Banco Bradesco SA analysts Luis Azevedo and Tales Freire wrote in a research note to clients today.

Bava is a veteran of Portugal Telecom SGPS SA, which owns 12.1 percent of the investor group known as TmarPart that controls Oi, and 19.4 percent of the Brazilian carrier’s non-voting shares, according to Oi’s annual report. Oi’s stock rallied 17 percent when Bava’s appointment as CEO on June 4 signaled that Lisbon-based Portugal Telecom was taking a more direct leadership interest in the Brazilian carrier.

Capital Spending

Oi is spending about 6 billion reais this year on infrastructure improvements, the most among peers, after getting more complaints about service from customers than any other Brazilian carrier. The Rio de Janeiro-based company, currently the country’s fourth-biggest mobile service provider, with a 19 percent share of the market, has said it will sell some assets to raise cash.

A change in Oi’s strategic plan wouldn’t be negative for the company because Bava will take a more active role in operations with the COO position being eliminated, according to Bradesco’s analysts, who maintained the equivalent of a buy recommendation on the stock. “However, we still expect the company to face quite difficult short-term circumstances until the changes by the CEO start to yield results,” they wrote.

The company said in yesterday’s filing that Bayard Gontijo would replace Zornig as CFO on an interim basis.

Oi’s non-voting shares have lost 57 percent this year, while the Ibovespa has dropped 23 percent.

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