Brazilian telco Oi on the way to another judicial protection

Brazilian telco Oi is about to undergo another restructuring, a month after exiting a six-year judicial reorganization, the second largest in the country's history.

The company filed on Wednesday an urgent injunctive relief with the corporate court in Rio de Janeiro that was responsible for its case to prevent its assets from being blocked at the request of some of its creditors.

Oi called for the “suspension of the enforceability of certain obligations assumed by the company, aiming to protect its cash and, consequently, the continuity of negotiations with its creditors in a balanced and transparent manner,” the company said in a statement.

Oi's lawyers suggested the next step should be a new judicial protection request.

“Grupo Oi seeks to ensure, through the filing of this injunction, the emergency preservation of its business activities, in order to allow the new stage of its restructuring in a judicial recovery process to be filed within the legal term,” said the petition, according to media reports.

When it first filed for bankruptcy protection in June 2016, Oi’s debt surpassed 65bn reais (US$12.8bn), leading to the biggest corporate restructuring process ever in the Latin American telecoms market and the second biggest among all corporates in Brazil.

By September, following asset sales, divestments and cost-cutting measures, net debt had fallen to 18.3bn reais, with gross debt of 21.9bn reais.

But Oi has run into trouble with the creditors of these debts, which are, according to the company, mainly related to (non-operational) financial expenses. The company was unable to reach an off-court debt deal with these creditors, which include national banks.

PANDEMIC, DOLLAR, REGULATION TO BLAME

The urgent injunctive relief was necessary because Oi said it might be unable to service debts due next week. 

The non-payment of more than 600mn reais due on February 5 would trigger the early maturity of almost all the financial debt because of contract clauses, according to Oi's lawyers. Most of the debt is dollar-denominated, subject to exchange rate fluctuations.

Ultimately, they said, there would be a risk for suppliers cutting essential services. 

Oi's underlying arguments are also that the scenario has changed since the first debt negotiation plan agreed with creditors years ago. 

First was the health crisis. The company cites the inflation and the ensuing rise in interest rates resulting from the pandemic, as well as higher than expected FX pressures stemming from the macro environment.

Regulatory changes, such as one that made it possible to end the concession of fixed telephony, a service that entails high costs for the company, have not yet had an effect. 

Oi and other fixed concessionaires are still in an arbitration process with regulator Anatel over who receives what, and how much, after the termination of the public service regime.

In a recent interview with BNamericas, Anatel’s president Carlos Baigorri listed Oi's situation as one of the most pressing items on the watchdog’s agenda for the year.

“Oi's situation, as is well known, is becoming increasingly complicated. The company has come out of bankruptcy protection but it still has a significant debt challenge,” Baigorri said.

After exiting the previous judicial reorganization, Oi’s president Rodrigo Abreu highlighted "highly critical challenges" that still lied ahead for the telco. 

Abreu cited the growth of operations and the development of new revenue sources, the regulatory discussions on the fixed telephony concession, negotiations with creditors and the future of Oi's legacy networks, among others.

"We have a new Oi, lighter, whose strategy is the expansion of fiber optics and digital services, in line with the growth trend of digitization in all sectors of the economy. We will pursue the vision of taking the company to the forefront of the fiber connections market, with very high-speed broadband, accompanied by digital and IT solutions for people and companies throughout Brazil," Abreu said in a statement.