UPDATE 3-Oi prices biggest Brazil follow-on offer in almost four years

Mon Apr 28, 2014 11:00pm EDT

* Oi raises total 8.25 billion reais from preferred and common stock sale

* Including asset swap, the transaction worth 13.95 billion reais (Recasts to add details on offering, size, bidders, background)

By Guillermo Parra-Bernal and Joan Magee

SAO PAULO/NEW YORK, April 28 (IFR/Reuters) - Brazilian wireless and fixed-line carrier Grupo Oi SA took the biggest step yet toward combining with partner Portugal Telecom SGPS SA on Monday by completing Brazil's largest follow-on share offer in almost four years at the lowest price expected.

Oi raised a total 8.25 billion reais ($3.7 billion) from selling common and preferred stock to local and foreign investors as well as a fund led by Grupo BTG Pactual SA, the deal's main adviser, according to a source with direct knowledge of the transaction. Including an asset swap with Portugal Telecom, the transaction was worth 13.95 billion reais.

The amount fetched was the largest for a follow-on offering in Brazilian equity markets since Petróleo Brasileiro SA's 120 billion-real capital increase in September 2010, according to Thomson Reuters data. The transaction was also the first share sale completed in Brazil since mid-December.

Oi lured European and U.S. funds, who bought 85 percent of the 5 billion reais in stock sold to minority investors, by pricing the securities at the lowest level possible. The cut-off price for preferred shares was 2 reais, at the bottom of the 2 reais to 2.30 reais suggested tag. Common shares were priced at 2.17 reais each, in line with a proposed premium of about 8 percent to the preferred stock.

Proceeds from the offering will help Oi reduce a stifling debt load. The recapitalized Oi, which also controls Brazil's fourth-largest mobile phone carrier, plans to use its stronger balance sheet to form CorpCo, the proposed name of the company after the 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.

Oi's preferred shares closed at a record low on Monday, shedding 5.6 percent to 2.37 reais, while common shares were down 0.4 percent to 2.52 reais.

DEAL DROUGHT

Before Monday, stock offerings in Brazil had their worst start this year in more than a decade, the latest sign of eroding investor confidence in Latin America's largest economy.

So far until Monday, no initial public offering or follow-on sale had been filed with the CVM this year, which is unheard of since at least 2004. A truncated capital markets calendar, rising political risks and the emergence of attractive investments elsewhere have left investment bankers struggling after they thrived for years with easy-to-sell IPOs.

Grupo BTG Pactual SA, the largest listed Latin American investment bank, is handling the Oi 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.

The Oi offering took off, according to investors heard by Reuters and the IFR, because BTG Pactual structured the deal with a series of guarantees to lure buyers.

A fund controlled by the São Paulo-based bank subscribed 2 billion reais worth of shares in the offering, the source noted. Oi and bankers increased the amount of available stock to buyers by 500 million reais, while a supplementary allotment worth 750 million reais was also placed.

By early Monday afternoon, investors had pledged to buy more than 10 billion reais worth of stock in the offering, another two sources told Reuters.

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's major shareholders excluding Portugal Telecom 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.

($1 = 2.24 Brazilian reais) (Additional reporting by Brad Haynes in São Paulo; Editing by Dan Grebler and Himani Sarkar)

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