Company Result Financials Reports

Oi to propose new debt plan as Q2 failings pile on the pressure

The financial turmoil of Brazilian operator Oi is continuing to spiral out of control, as the mounting pressure of poor Q2 results on top of its recent bankruptcy filing has forced the company to announce plans for another tactical restructuring of its debt mountain.

Oi published Q2 earnings down 24.4% to $450m, with revenues declining 3.8% to $2bn for the quarter and a net loss of $209.6m, up from $138.7m in the same period a year ago.

Oi was forced to file for bankruptcy back in June after its shareholders rejected a plan to restructure $19.3bn of debt amid a harsh Brazilian recession, and shortly after publishing its Q2 results the fourth largest MNO in the country announced it will present a new restructuring strategy within the next month.

After receiving a request for clarifications on its revised restructuring plans, Oi released a statement this week claiming it expects to save $1.9bn per year in interest payments and an estimated debt decrease of $15.7bn. Further details remain under wraps until an emergency meeting set to be held on September 8. Marco Schroeder, who became Oi’s sixth CEO in five years earlier this year, only revealed that the company’s creditors will be presented with a reorganization plan which involves a debt-for-equity swap.

The net debt pile was $13bn at the close of Q2, up from $10.9bn a year ago. Oi has amassed this debt having spent heavily on acquisitions and investment in its fixed line assets over the years, as well as the struggle to move away from its fixed line business and adapt to the surging mobile market in Brazil. The bankrupt operator cited this debt increase as down largely to the payment of the most recent 3G license payment and severance costs.

There is a smidgen of positive news for the operator to cling on to, however, as it increased ARPU for its residential business by 1.6% quarter on quarter and 4.5% year on year to $25.76.

Oi will still be hopeful of finding an investor such as Egyptian telecoms tycoon Naguib Sawiris, or Russian billionaire Mikhail Fridman, founder of LetterOne. If such an investor can be found and the latest restructuring plans are approved, Oi may just be able to wriggle itself out of a situation which many think is a dead end.

Oi’s Q2 results also show customers are still dropping like flies; it has seen 2.44m disconnections in the past year and shed 240,000 mobile customers in the last quarter – leaving it with a total subscriber base of 45.32m. It trails Telefonica’s market leader Vivo with 73.2m mobile subscribers, followed by TIM with 65.3m, and Claro with 64.6m.

“Under judicial reorganization Oi continues with its strategic plan focused on digitalization, convergence, data, cost control and improved user experience, and it has recorded operational advances in its business segments, especially the residential segment,” Oi said.

Oi also recently filed a bankruptcy protection request in the Netherlands for its subsidiary Oi Brasil Holdings Coöperatief UA, which was accepted by the Amsterdam-based court, according to sources close to the situation. This will allow for an independent trustee and protection of payments to creditors for its Dutch business. An anonymous source said this was a “huge development because it forbids Oi’s management from representing the company without the trustee’s consent.”

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