Political Meltdown Foils Oi Exit From $19 Billion Bankruptcy

  • Key pieces of legislation needed to unlock Oi deal are stalled
  • Anatel debt is final puzzle piece before Oi can call assembly

A pedestrian passes an Oi SA telephone booth in Brasilia.

Photographer: Gustavo Gomes/Bloomberg

For more than a year, Oi SA has struggled to reach a deal with various factions jockeying for a leg up in its $19 billion bankruptcy case. Almost entirely absent from that process? The company’s single biggest creditor.

Brazil’s government claims that Oi owes telecom regulator Anatel as much as 20 billion reais ($6.1 billion), but current law forbids the agency from accepting any sort of haircut or extending the payment schedule. Now, two pieces of legislation that would free up the regulator to negotiate are stalled as Brazil President Michel Temer and hundreds of politicians fight for their political survival following a new round of graft allegations.

“Nothing is getting done,” Anatel President Juarez Quadros said in a telephone interview from Brasilia. “Because of that, we’re unable to offer any guidance or say anything.”

The paralysis that’s gripped the nation’s capital is stymieing Oi’s recovery process. While the telecom giant says it’s meeting regularly with creditors and shareholders to work out the final details, the Anatel debt has become a major sticking point. Without that final piece, Oi may not be able to hold a planned general assembly by September, raising the chances the government will have to step in to rescue the nation’s largest operator of landlines.

Potential investors are reluctant to pour new money into the embattled phone operator until they know that the Anatel debt can be renegotiated, according to a person close to the negotiations. The legislative delay is also making debt holders hesitant to agree to a haircut, according to the person, who declined to be identified discussing private talks.

“I’m very skeptical a deal will happen,” said Adeodato Volpi Netto, the head of capital markets at Eleven Financial Research, which has had a sell recommendation on the stock since 2015. “To reach a deal, something has got to give and right now nobody wants to go first.”

Oi didn’t respond to a request for comment about the talks or timing of a deal.

Held hostage by the crisis is a presidential decree that would allow Anatel to extend the payment schedule on the debt to 20 years from the current seven-year limit, and pave the way for exchanging part of the fines for investments. The trustee overseeing the bankruptcy case has said Anatel is entitled to claim 11.1 billion reais in the negotiations.

Also in limbo is legislation that would free Oi up from some of the onerous regulation that led to that monstrous bill in the first place. One such requirement forced Oi to maintain a network of 650,000 public payphones, even as rivals plowed ahead with an expansion into mobile telephone and internet service. As recently as last year, Oi was spending 300 million reais annually to maintain payphones in places as remote as the Amazon forest that only generated 17 million reais in revenue.

“That law is outdated and it hurts the sector,” Quadros said. “Governors, representatives, senators come to me and not one of them asks me for public payphones. What they want is high-speed internet.”

The outlook on the bill’s passage anytime soon is grim. Congress is scheduled to start a one-month recess by mid-July, and the measure still has a long way to go. After it was approved by a special Senate committee in December, the Supreme Court weighed in and said the legislation needs a full floor vote before it can be opened up to amendments. It then has to make another round through the lower house.

With Brazil’s president and members of both houses fighting off allegations they took, paid or condoned bribes, legislative work has largely ground to a halt. A year after the nation’s last president was impeached, Temer was charged for allegedly green-lighting a payment of hush money to a jailed lawmaker. He has denied any wrongdoing.

“We have no idea if the decree will be published or not,” Anatel’s Quadros said. “We’re in the dark.”

Separately, a trustee for a unit reorganizing in the Netherlands filed a petition in Manhattan bankruptcy court that could allow it to sue over billions of dollars in transactions leading up to Oi’s bankruptcy. The filing asks a New York judge to deem the unit’s main reorganization to be in Dutch court, not Brazilian court, a move that trustee Jasper R. Berkenbosch said will allow it to pursue claims that the board breached its fiduciary duty and that the transactions can be clawed back under a Dutch legal concept, “Actio Pauliana,” which is similar to the U.S.’s fraudulent transfer law.

The International Bondholder Committee, which includes Aurelius Capital Management, has expressed support for the prosecution of such claims, Berkenbosch said in court filings. A Dutch court rejected Oi’s appeals last week against decisions to declare the phone carrier’s Dutch units bankrupt.

Oi said in a statement that the ruling has no effect on its recovery process.

“A decision of the United States justice system has recognized Brazil as the main jurisdiction for processing Oi’s judicial recovery, given that its operations and focus is essentially on Brazil,” the company said in a statement. “The recent initiatives against the universal jurisdiction of the Brazilian court are attempts by a certain group of creditors to obtain an undue advantage in the judicial recovery in progress in Brazil, to the detriment of all creditors.”

— With assistance by Simone Preissler Iglesias, and Tiffany Kary

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