Oi abandons debt restructure; files for bankruptcy protection

Brazilian operator Oi has filed for bankruptcy protection after failing to negotiate a deal to restructure its debt.

Doubts over the feasibility of a restructure were initially raised following the resignation of Oi’s CEO, Bayard Gontijo. He was replaced by the company’s Financial Administrative Officer Marco Schroeder, who was unfortunately unable to reconcile the demands of the company’s creditors and shareholders.

The case is reportedly the largest of its type in the country. Oi claimed that the decision was prompted “due to challenges confronted by the company’s management in finding a viable alternative with its creditors”, and added that “the company will continue working to secure new customers while maintaining its service and product sales to all market segments, in all of its distribution and customer service channels.”

Oi has disclosed that the total claims of persons not controlled by the operator amount to BRL65.4 billion ($19.3 billion). It has filed for bankruptcy protection to safeguard its ability to offer services to customers, keep continuity across its operations and corporate activity, and protect its cash which is currently being rapidly depleted by debt repayments.

The operator’s debt has piled up as a result of investment in its fixed network and via mergers and acquisitions. Exacerbating this is a weak domestic economy which has restricted the spending power of many Brazilian customers. Oi also tails its mobile competitors in terms of connections, having failed to take advantage of mobile growth in Brazil as well as its internationally-backed rivals.

Restructuring Oi’s debt would have required converting debt to equity, meaning that bondholders assumed almost all of its stock. This would have resulted in significant dilution for existing shareholders, and accordingly they were applying “severe pressure” to Gontijo to avoid this course of action. Reportedly, he considered the creditors’ demands to be reasonable.

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