Brazil's Oi offer seen pricing at bottom, demand strong, sources say

SAO PAULO, April 28 Mon Apr 28, 2014 2:26pm EDT

SAO PAULO, April 28 (Reuters) - Grupo Oi SA, Brazil's biggest fixed-line telephone carrier, on Monday got closer to its planned merger with Portugal Telecom SGPS SA as investors were willing to place more than enough bids in a share offering expected to be worth at least 8 billion reais ($3.6 billion), sources told Reuters.

The offering consists of a combined 5.75 billion common and preferred shares and could rise by almost 2 billion shares with supplementary and additional allotments. According to two sources with direct knowledge of the deal, Oi's preferred shares may price at around 2 reais, or at the bottom of the suggested range of 2 reais to 2.30 reais.

So far, investors have pledged to buy as much as 10 billion reais worth of stock in the offering, said the sources, who requested anonymity because the deal is in the works. The share offering is scheduled to price later on Monday, according to a prospectus released on April 3.

Preferred shares fell to a record low in Monday afternoon trading, shedding 5.6 percent to 2.37 reais, while common shares were down 2.4 percent to 2.47 reais. Banks estimate that Oi needs to raise at least 8 billion reais in order to adequately reduce Oi's stifling debt.

Rio de Janeiro-based Oi, which also controls Brazil's fourth-largest mobile phone carrier, expects to use fresh capital to beef up CorpCo, the proposed name of the company after the proposed tie-up with Portugal Telecom.

Executives at Oi and Portugal Telecom say CorpCo will have more clout to compete in Brazil with bigger rivals such as the local unit of Spain's Telefonica SA , Telecom Italia SpA's TIM Participações SA and Mexico's America Movil SAB.

Under terms of the deal, Portugal Telecom will contribute its assets, excluding its stake in Oi, and own 38 percent of the new company. Oi would have as much as 30 percent of CorpCo and other investors such as BTG Pactual and a number of Brazilian pension funds would own the rest.

Each Oi common share would be exchanged for 1 share in CorpCo and each Oi preferred share would be swapped for 0.9211 CorpCo share.

Grupo BTG Pactual SA, the largest listed Latin American investment bank, is handling the transaction, along with the investment-banking units of Bank of America Corp , Barclays Plc, Citigroup Inc, Credit Suisse Group AG, Banco Espírito Santo SA and HSBC Holdings Plc.

Banco do Brasil SA. Banco Bradesco SA, Banco Caixa Geral de Depósitos SA, Goldman Sachs Group Inc, Itaú Unibanco Holding SA, Morgan Stanley & Co and Banco Santander SA are also joint bookrunners.

($1 = 2.23 Brazilian reais) (Additional reporting by Brad Haynes in São Paulo; Editing by Dan Grebler)

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