Elliott Said in Talks to Invest $3 Billion in Brazil’s Oi

  • Funds would be used to repay borrowings, finance investments
  • Hedge fund sees opportunity for winning restructuring plan

Elliott Management Corp., the hedge fund company led by billionaire Paul Singer, is in talks to invest as much as 10 billion reais ($3 billion) in Oi SA, the Brazilian phone company that filed for bankruptcy protection, according to two people with direct knowledge of the matter.

The funds would be earmarked for debt repayment and investment, said the people, who asked not to be named because the matter is private. The aim is to keep the company intact while reducing its $20 billion debt, they said.

Elliott is trying to come up with a restructuring plan that can win over squabbling creditors and shareholders. The non-binding proposal is preliminary and the fund is still doing due diligence, one of the people said. Singer’s company sees an opportunity to act as an independent investor because debtholders have balked at Oi’s restructuring plan, calling it “unfavorable and probably unacceptable” in a statement last month.

Preferred shares of Oi rose as much as 6.7 percent to 3.01 reais in Sao Paulo Wednesday, and were trading at 2.90 reais at 11:20 a.m.

Elliott, based in New York, declined to comment.

Convertible Bonds

The main dispute is the right Oi would have under its restructuring plan to redeem bondholders’ convertibles. Creditors, represented by Moelis & Co., argue the option for early redemption gives current shareholders power to avoid dilution if the company manages to turn around, while leaving bond investors with a large loss if things go badly.

The Rio de Janeiro-based operator proposed converting up to 32.3 billion reais of bondholders’ debt into convertible bonds with a face value of 10 billion reais. Lenders would get 85 percent of the company if Oi doesn’t pay off the debt in three years -- leaving current shareholders in control of the company until then and in position to benefit from any recovery, according to creditors.

Two of the largest shareholders of Oi SA settled a legal power struggle on Sept. 13.

Societe Mondiale Fundo de Investimento em Acoes, the investment arm of Nelson Tanure, and Pharol SGPS SA, Oi’s largest holder, agreed to end all legal claims related to shareholder meetings that Societe Mondiale had called for Sept. 8, according to a statement by Pharol. Tanure got two seats on the board and ended efforts to call the shareholder meetings.

Oi filed for the biggest bankruptcy in Brazil’s history in June, and in September submitted a proposal to settle with almost 67,000 creditors. The plan included a reduction of as much as 70 percent in the value of its bonds, as well as asset sales, new resources and the possibility of a merger or breakup.

Globo reported earlier Tuesday that representatives from Elliott met with government official to discuss a proposal to inject as much as 10 billion reais into Oi, citing unidentified people familiar with the matter.

Singer isn’t the only billionaire looking at Oi’s bankruptcy. Last last month, the newspaper Valor Economico reported Carlos Slim’s America Movil SAB is monitoring Oi’s judicial-recovery process and any deals would depend on price, authorization from Brazilian regulators and details of Oi asset sales. The newspaper cited an interview with America Movil’s CEO Daniel Hajj.

“America Movil is open to evaluating all possibilities, but what Mr. Hajj said is that when we know what will be sold and what the conditions are, we’ll evaluate the case,” the Mexico City-based company said in an e-mailed response to questions.

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