Brazilian regulator tightens grip on Oi as carrier's crisis deepens

Brazilian telco Oi, which filed for Latin America's biggest bankruptcy protection over a year ago, is facing new turmoil as it enters a crucial week with a general creditors' meeting due to take place on Friday (Nov 10).

On Monday, the country's telecom watchdog Anatel announced it was extending the supervisory powers it already exerted over Oi to try to protect the company from "harmful" measures. This means that from now on, Oi's board meetings will be monitored by an Anatel representative and all the decisions taken by the various boards of Oi will be reviewed by the regulator.

Anatel also issued a precautionary measure preventing Oi from signing a Plan Support Agreement (PSA) with creditors for its restructuring proposal, approved on November 3 by the company's board, before it assessed by the watchdog.

The regulator wants to ensure that Oi's restructuring is in line with what it considers acceptable for the company to survive in the market.

All of this comes after a group led by influential investor Nelson Tanure, which owns 5% of Oi through the Societé Mondiale fund, in tandem with Pharol, which includes former executives from Portugal Telecom and holds 22% of Oi, managed to include new statutory directors on Oi's board.

That meant they were able to form a majority and could approve the PSA, which is seen by some observers as being too favorable to certain shareholders but potentially damaging to the company's finances. The idea was to present the agreement for a vote at this week's general creditors' meeting.

The PSA is said to have been tailored according to the interests of a group of bondholders (G6) aligned with Société Mondiale and Pharol, but goes against the interests of another group of creditors (G5/Evercore/Moellis), as well as Oi executives.

The PSA includes a provision requiring the company to pay bondholders large annual fees in exchange for capital they would pump into the carrier. Such payments, however, would actually be made prior to the capital injections, which Anatel believes poses risks to Oi's operations and finances.

After meeting with CEO Marco Schroder, who opposed the PSA and threatened to resign from his post along with other important members of the executive board, Anatel decided to tighten its grip on the company and blocked the deal.

Oi said its plan would involve a minimum capital increase of 7.1bn reais (US$2.16bn), of which 3.5bn reais would come from cash injections and 3.6bn reais in the form of a debt-for-equity swap.

In a press conference on Monday, Anatel president Juarez Quadros said Oi's available cash of approximately 7bn reais ensures the continuity of its services, but not necessarily the investments it needs.