UPDATE 1-Brazil's Oi to sell assets to repay debt, bolster profit

Wed Feb 19, 2014 10:44am EST

(Adds executive and analyst comments, details about asset sale, earnings, share price)

SAO PAULO Feb 19 (Reuters) - Grupo Oi SA, Brazil's most indebted telecom company, plans to sell more assets to pay down debts, Chief Executive Zeinal Bava said, after the recent disposal of underwater fiber optic cables bolstered its fourth-quarter profit.

The sale helped Oi almost triple profit from a year earlier to 1.183 billion reais ($494 million), the company said on Wednesday. Without the deal, Oi would have posted a net loss due to the flagging performance of its mobile phone unit and ongoing disconnections of fixed-line subscribers.

"We are going to continue looking to sell more assets. Everything we consider non-core we're going to sell," Bava told analysts on a conference call. "Any cash from asset sales will be used to pay debts or create financial flexibility."

Oi is one of many companies in Brazil, from sugar producers to food processors, that are streamlining operations to bolster returns as the economy turns sour. Sliding consumer confidence and tougher competition have weighed especially on the country's phone companies.

"We remain cautious on Oi," wrote J.P.Morgan Securities analysts led by Andre Baggio in a note Wednesday. By selling off business units, Oi has sacrificed about 650 million reais of operating profit next year, the analysts said.

Shares of Oi were little changed on Sao Paulo's stock exchange, edging up 0.2 percent to 4.31 reais.

DODGING ANOTHER LOSS

The sale of Oi's fiber optic unit GlobeNet to a fund led by investment banking firm Grupo BTG Pactual SA, under a deal struck in July, added nearly 1.5 billion reais to Oi's results, helping it to avoid a second quarterly loss in 2013.

Oi is looking to sell another block of cell towers this year, Bava said, without providing details on potential terms or bidders.

The group's net debt climbed 4 percent in three months and 21 percent from a year earlier to 30.416 billion reais at the end of December. Capital spending in 2013 slipped 5 percent from a year earlier to 6.250 billion reais.

The difficulty of keeping up investments, paying dividends and servicing hefty debt costs has bolstered the case for an injection of fresh capital as part of Oi's planned merger with key shareholder Portugal Telecom.

Revenue dropped 2.4 in the October-December quarter compared with a year earlier, with mobile services slipping 3.0 percent and residential revenue rising only 0.7 percent.

Earnings before interest, taxes, depreciation and amortization, a gauge of operating profit known as EBITDA, surged 39 percent from the year before to 3.496 billion reais due to the GlobeNet sale.

Several banks' equity research desks declined to give earnings estimates for Grupo Oi. Some cited rules barring such forecasts while engaged in an investment banking transaction with the company.

Oi confirmed this month that a group of banks had agreed to contribute 6 billion reais to its upcoming capital increase.

($1 = 2.40 Brazilian reais) (Reporting by Brad Haynes and Silvio Cascione; Editing by Pravin Char and Bernadette Baum)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.