CEO’s Exit Is the Last Thing Oi Needs Amid Carrier’s Debt Talks

  • Financial Administrative Officer Schroeder named new CEO
  • Brazilian wireless operator has $14.4 billion in debt

The surprise departure of Oi SA Chief Executive Officer Bayard Gontijo amid what is shaping up to be the biggest restructuring in Brazil’s history shows the phone operator may have hit a wall on its tough road back to viability.

Gontijo, 44, who led the company for less than two years, resigned Friday. His exit adds another element of uncertainty for Rio de Janeiro-based Oi as it seeks to dig out from under almost 50 billion reais ($14.4 billion) of debt. The company didn’t give a reason for Gontijo’s departure. He was replaced by Financial Administrative Officer Marco Schroeder, 51, according to a filing Friday. Schroeder will also retain his financial role, Oi said.

Bayard Gontijo

Photographer: Chris Goodney/Bloomberg

Gontijo disagreed with some board members on how to move forward on negotiations with debtholders, and he opted to resign to allow the talks to proceed quickly, said a person familiar with the matter. Robin Bienenstock, a former telecom analyst, also resigned from the board Monday.

“It is management suicide for the company to let go the guy who was giving back credibility, providing oxygen for Oi in a moment it was already asphyxiated,” Adeodato Volpi Netto, head of capital markets at Eleven Financial Research, said from Sao Paulo. “It sends a very clear message: what needs to be done doesn’t resonate with the board and shareholders.”

Oi shares dropped 13 percent to 1.42 reais at 10:29 a.m. in Sao Paulo, the biggest intraday drop in almost three months. It was the biggest decliner in the BM&FBovespa Small Cap index.

‘Tough Manner’

Part of Oi’s debt includes 231 million euros ($260 million) in a bond maturing July 26. The senior unsecured debt was issued in 2012 in the European common currency by a unit of Portugal Telecom, Bloomberg data shows, and is equivalent to about 900 million reais. Oi also has 1.1 billion reais in local notes due in September.

Debtholders involved in the talks were surprised by the resignation of Gontijo, who had met with them in recent days, according to another person, who asked not to be identified because the discussions are private. Any disagreement among Oi executives about the restructuring wasn’t apparent to debtholders, the person said.

As recently as two weeks ago, the talks had been advancing, with six investors signing a confidentiality agreement to access company information, people familiar with the matter said at the time.

“They won’t be able to do anything without the debt restructuring,” Volpi Netto said. “Debtholders knew Gontijo was addressing in a tough manner what had to be addressed.”

Landline Burden

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 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.

Gontijo took over in October 2014, replacing Zeinal Bava after the troublesome merger with Portugal Telecom, which contributed to Oi’s debt. He focused on improving the company’s operations in 2015 and cut a deal with Russian billionaire Mikhail Fridman to help Oi finance a merger with Telecom Italia SpA’s Brazilian unit. The agreement fell through in February, and in March the carrier hired PJT Partners Inc. for advice on how to manage its debt.

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