What’s next for Brazil’s Oi after the end of bankruptcy protection?

After more than six years, the biggest corporate restructuring process in the history of the Latin American telecoms market is finally coming to an end.

The business court judge in Rio de Janeiro responsible for Oi’s bankruptcy protection case announced on Wednesday that the telco has complied with all its obligations related to the processes and therefore gave his approval for the end of the judicial proceedings.

Oi filed for bankruptcy protection in June 2016. At that time, it had debts of more than 65bn reais (US$12.1bn at present values) with 55,000 creditors, including individuals, banks and regulators, as well as small and medium-sized companies and large corporations. 

Following a series of divestments and asset sales, among other initiatives, Oi's net debt had fallen to 18.3bn reais at the end of September, with gross debt standing at 21.9bn reais, down 35.6% year-on-year.

Throughout the course of the strategic plan agreed with creditors and overseen by the Rio court, Oi sold real estate assets, mobile towers, fixed towers, datacenters, the control of its fiber optic network (leading to the creation of V.tal), its pay-TV unit and its crown jewel, its mobile operation. 

In total, the company has raised 30.7bn reais from the sales, including the mobile business. The final price of the latter, however, is being disputed by the trio of buyers, Telefônica Brasil, Claro and TIM.

Part of the proceeds from the sale went to pay creditors, notably public banks such as Brazil’s BNDES, with whom Oi had debts of more than 4.6bn reais.

However, Oi's net revenues tumbled 38.7% year-on-year in 3Q22 to 2.7bn reais, and the company reported a net loss of 3.06bn reais, down 36.4%.

“Oi's biggest problem is still financial. Operations are progressing, but it's necessary to understand how the economics of the company regarding InfraCo (V.tal) will play out, how this model will sustain itself. And there's still a lot on the table, such as the arbitration for the end of the fixed telephony concession,” Felipe Hildebrand, communications, media and technology partner at consultancy Oliver Wyman, told BNamericas.

In a November report, Fitch said that the Brazilian company was expected to report higher leverage and lower profitability as a result of the disposal of assets with higher operating margins, such as the mobile operation.

“One of the main themes for the telecom market in 2023 in our assessment is precisely the continuity of the integration process of Oi's mobile assets, with all the benefits in economies of scale and capex savings, because of more spectrum acquired, what that should bring to the three buyers,” Fitch analyst Alexandre Garcia told BNamericas.

“The decommissioning of the towers and antennas they acquired from Oi, for example, will run until 2024, but a good part of that should occur in 2023,” added Garcia.

THE END OF A CHAPTER

Oi president Rodrigo Abreu said that the conclusion of the judicial reorganization is an important milestone for the company.

However, he also said that "highly critical challenges" still lie ahead, such as the growth of operations and the development of new revenue sources, the regulatory discussions over the fixed telephony concession, ongoing negotiations with creditors and the future of Oi's legacy networks, among others.

Since 2016, Oi has entered into over 60,000 agreements with creditors in Brazil and abroad.

“This was one of the largest judicial recovery processes in the country and an emblematic example due to the transparency and way of conducting the relationship between creditors and the company through the judicial process. Its complexity and importance in the Brazilian market ended up, in a way, making it a reference for other similar processes and a starting point for the revision of current legislation,” the company said in a separate statement.

The new Oi will be formed by the FTTH business Oi Fibra; by Oi Soluções, an IT solutions and B2B connectivity unit; and by shared control of neutral wholesale fiber network V.tal.

It will also include two wholly-owned subsidiaries, Serede and Tahto, the former focused on network and logistics services and the latter on customer care and customer relationship services.

Oi continues to provide services as part of its obligations as a fixed-line concessionaire, as well as other services based on legacy infrastructure.

"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," said Abreu.

Oi began negotiations with its creditors with the support of financial advisors at Moelis & Company.

Basílio Advogados, Barbosa Müssnich Aragão (BMA) and Rosman, Penalva, Souza Leão, Franco, Vale Advogados also took part in the judicial recovery process.

BASE

Oi had 5.1mn fixed broadband accesses at the end of October, according to data from regulator Anatel, giving it 11.6% of the market, after Claro (22.2%) and Telefônica Brasil (14.7%).

The company's mobile base is no longer calculated.

In May, the last month it was registered as belonging to Oi, the operator had 42.1mn mobile users (16.3%), trailing Telefônica, Claro and TIM.

In pay-TV, although the operation was sold to Sky, the deal has not yet been fully completed and clients are still calculated as belonging to Oi. They numbered 2.7mn at end-October, for 18.6% of the market. Claro and Sky led the pay-TV market with 43.2% and 28.3% of the total, respectively.

Finally, in fixed telephony, Oi had 29% of the market as of October 31, or 7.9mn accesses, second only to Claro (30%).