The distressed asset investment firms that are Brazilian telecom Oi SA’s top shareholders will focus on improving the company’s mobile and broadband operations instead of a near-term sale of their stakes, two sources with knowledge of the matter said.
Brazil’s largest fixed-line telecoms carrier is expected to complete a 4 billion real ($1 billion) capital raise by year-end, and management will use proceeds to accelerate investments in broadband and mobile networks.
Investors have warmed to the company since bondholders scored the first major victory in a Brazilian bankruptcy proceeding after three years of battles with shareholders. That left funds including Solus Alternative Asset Management LP, GoldenTree Asset Management LP and York Capital Management Global Advisors LLC in control.
Investment firms fought for the right to boost their shares by participating in the capital raise, Reuters reported last month. Oi sought court protection from its creditors two years ago in Latin America’s largest-ever bankruptcy proceeding.
Oi and GoldenTree declined to comment. Solus and York did not respond to requests for comment.
Among the top priorities for Oi’s new management will be reversing client attrition.
The company ended the second quarter with 59 million subscribers, down 6 percent from a year earlier. It lost 8.5 percent of its mobile clients over the last year, ending June with 36.5 million subscribers.
But Oi told analysts this month it is quickly gaining market share in a pilot project in Rio, where it tested ultra-fast broadband.
According to the first source, who asked for anonymity because he was not authorized to discuss the matter publicly, the hedge funds believe they can obtain a higher value for their stakes once Oi becomes more competitive and regains market share.
Another issue hindering a short-term deal is a legal dispute with Brazilian telecoms regulator Anatel involving around 14 billion reais in regulatory fines, the other source said. Anatel demanded that amount is considered separately from the debt restructured in the bankruptcy court.
Oi shareholder Pharol SGPS SA is also challenging the restructuring proceedings. The investment firms believe potential acquirers will pay more for Oi once these legal issues are sorted out.
At a shareholder meeting scheduled for Sep. 17, Oi is expected to appoint a new board and update its bylaws, including rules surrounding any potential change in control.
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