Convergencia Research, Consultoría especializada en Latinoamérica y Caribe
Friday, February 17, 2023

Oi's return to judicial recovery casts doubts on its future

The changes in the national and global economic situation after the Covid pandemic seriously affected the sustainability of the company, which is currently facing a heavy financial burden.

Almost exactly one month after exiting the judicial recovery process initiated in 2016, Oi's management went before the Justice of Rio de Janeiro to request an emergency protection order as a step prior to entering a new judicial recovery process from which, according to the opinion of several experts, it should never have exited.

Although the company had complied with almost all the indications established in this process, such as the restructuring of its debt with creditors and the sale of almost all its assets, among an enormous number of actions to be taken, in recent times, especially after the Covid-19 pandemic, to be precise, the economic and financial situation in the country and in the world underwent important changes. These caused the economic equations foreseen in 2016 to be no longer the same in 2022, where it arrived with a financial debt of US$ 5.737 billion with national and international creditors. In turn, the company's liabilities, which in 2016 were US$ 12.516,4 billion, were reduced to US$ 6.739,6 billion at the end of 2022.

A clear example of the setbacks suffered in recent years is that due to delays in regulatory approvals for the sale of the company's main assets, Oi made a bond issue in the international market, for US$ 880 million, to cover a series of payments it planned to make with the proceeds from these sales. The international context, with great difficulties in obtaining this type of credit, determined that 98% of the buyers demanded the inclusion of a mandatory repurchase clause or the prepayment of US$ 847.3 million. In other words, they had to disburse in advance almost the same amount as that obtained. To this one should add the changes that have occurred in the foreign exchange market in recent months.

In fact, the history of Oi itself has always been plagued by problems of all kinds, including corporate problems, and this time does not seem to be the exception. In the midst of this new process, a group of minority shareholders led by Tempo Capital, Victor Adler and VIC DTVM, requested an extraordinary meeting to discuss the dismissal of the company's current Board of Directors, which has been set for March 6. In addition, they propose the reduction of the number of members of the Board, which currently has 11 representatives, to a maximum of seven or nine.

Although this issue is not clear in the eyes of the market, there are suspicions about the intention to liquidate the assets that are still part of the company, such as the participation in the neutral network company V.tal and the fixed telephony business, whose concession expires in 2025.

In the case of V.tal, Oi's own CEO, Rodrigo Abreu, accepted that, if necessary, the sale of Oi's stake (about 37%) could take place, although for the moment it is not the intention to get rid of this asset.

For fixed telephony, where in the last year the company lost more than 1.9 million customers, there is the expectation of achieving a renegotiation of the concession contract or going private, in addition to a request for indemnification (contemplated in the initial contract) to the State for the negative business in the last few years.

With the support of the National Telecommunications Agency (Anatel, in Spanish) and the courts, Oi is once again preparing to fight for its existence, as has been the case since 1998, when it was called Telemar, and since 2008, when the merger of Telemar with Brasil Telecom gave birth to Oi.

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