(New throughout, updates with CVM decision, adds implications, background)
By Joan Magee and Guillermo Parra-Bernal
NEW YORK/SAO PAULO, April 1 Brazil's securities industry watchdog CVM on Tuesday lifted a suspension on Grupo Oi SA's 6 billion real ($2.7 billion) share offering, paving the way for the Brazilian telecommunications company's merger with Portugal Telecom SGPS SA.
Regulators last week halted the offering after Oi Chief Executive Officer Zeinal Bava breached a mandatory quiet period ahead of the transaction. Grupo BTG Pactual SA, the bank handling the deal, and Oi agreed to urge investors to ignore Bava's remarks, a condition CVM said in a statement was enough to lift the suspension.
The decision takes effect past midnight and allows Oi to launch the offering within hours. Bankers were preparing to lunch the offering late on Tuesday, pending the CVM decision, two sources with knowledge of the situation told Thomson Reuters' IFR.
The offering is the backbone of Oi's planned capital increase of 14 billion reais that will allow it to tie up with Portugal Telecom, its biggest shareholder. The offer was originally scheduled to price on April 16.
Last week, shareholders of Oi and Portugal Telecom approved the capital increase and separate asset appraisals at their respective assemblies in Rio de Janeiro and Lisbon. Executives at the companies say the tie-up will give the resulting entity more clout to compete inside Brazil with bigger rivals such as Spain's Telefonica SA, Telecom Italia SpA's TIM Participações SA and Mexico's America Movil SAB .
The shorter timeline underscores Oi's urgency to get the deal done before more banks endorsing the offering have second thoughts. Banco Bradesco SA and Itaú Unibanco Holding SA are considering pulling out of the deal because of demands by regulators that they to buy up remaining shares if demand falls short, two sources told Reuters, requesting anonymity given the sensitivity of the issue.
Itaú and Bradesco, both based in São Paulo, as well as another 12 banks signed a firm commitment to the transaction about two weeks ago. Oi had obtained firm commitments from a group of lenders led by Grupo BTG Pactual SA, sources told Reuters late in March.
Portugal Telecom and Oi have been discussing how to merge since the former bought 25 percent of Oi in 2010. The market value of both companies has fallen more than half over the past three years, a sign investors believed a merger would take place sooner or later.
Many Oi shareholders have criticized the tie-up, saying the capital increase favors Oi's largest shareholders, including Portugal Telecom, at the expense of minority investors.
Oi common shares tumbled 6.2 percent in Tuesday trading. Preferred shares of the company fell 7.7 percent. Itaú and Bradesco were both up about 1 percent.
Bloomberg News first reported the possibility of banks backing out of the deal on Tuesday. According to the Bloomberg report, a group of four banks, including Itaú, Bradesco, Goldman Sachs Group Inc and Citigroup Inc are weighing pulling out of the deal.
Oi, Itaú and Bradesco declined to comment. Goldman Sachs and Citigroup had no immediate comment on the Bloomberg report.
Other banks involved in the operation include Bank of America Corp, Barclays Plc, Credit Suisse Group AG, Banco Espírito Santo SA, Banco do Brasil SA, Caixa Geral de Depositos SA, HSBC Holdings Plc , Morgan Stanley & Co, and Banco Santander Brasil SA.
($1 = 2.25 Brazilian reais) (Reporting by Guillermo Parra-Bernal; Additional reporting by Luciana Bruno in Rio de Janeiro, and Brad Haynes and Walter Brandimarte in São Paulo; Editing by Sofina Mirza-Reid, Andre Grenon and David Gregorio)