* Oi-Portugal Telecom merger to create stronger competitor
* CEO says "not comfortable" with post-deal debt levels
* Considering further asset sales including mobile towers
By Leila Abboud
BARCELONA, Nov 20 Brazil's largest fixed telecom
group Oi said it is confident it could raise cash if it decides
to pursue acquisitions to bolster its share of the mobile market
following its merger with Portugal Telecom.
Zeinal Bava, who became chief executive of the combined Oi
and Portugal Telecom after their merger was
announced in October, did not rule out a share sale to fund
mobile deal-making or to reduce the new company's debt.
Speaking at a conference on Wednesday, Bava said he did not
feel "comfortable" with the group's debt levels after the deal,
which will be roughly 3.2 times core annual profit.
"Of course, we do not feel comfortable about this level," he
said, adding that the market would probably prefer debt levels
to be closer to 2 times core profit.
The merged company would need to raise cash to fund any
major acquisitions in Brazil's mobile market, which is dominated
by four players but could be reduced to three next year if
market leader Telefonica pursues a break-up or sale of
third-place Telecom Italia's Tim Brasil.
Analysts and telecom bankers have said that Oi, ranked
fourth in the mobile market, could buy part of Tim Brasil along
with rivals if it were broken up. None of the main players in
Brazil could buy all of Tim Brasil, which analysts value at
around 8.9 billion euros, because of antitrust concerns.
Telefonica is the largest shareholder in Telecom Italia
so has a say over the group's strategy in Brazil even
though they are rivals there. Sources earlier told Reuters that
Telefonica aims to sell Tim Brasil in the second half of 2014.
"We will continue to monitor what happens in Brazil," Bava
said. "We have the ability to look at acquisitions if we want
to, but right now our focus is to simplify our corporate
structure by finalising the merger. Once we do that we can look
at other things."
The Oi-Portugal Telecom merger is expected to be completed
in the first half of next year.
Asked whether a mobile deal would require additional
funding, Bava said: "It all comes down to how much it costs. But
if we need capital to consolidate and on the back of that we can
prove to the market that we can generate synergies, I believe
raising it will not be an issue."
Even without acquisitions Oi would be able to grow its
mobile business by focusing on the pre-paid market and targeting
certain regions like southern Brazil where its market share is
too small, he said.
Oi lags rivals in the rapidly expanding mobile sector and is
losing customers. Vivo holds a 28.7 percent market share, Tim
Brasil holds 27.2 percent, while America Movil's Claro
has 25 percent and Oi has 18.6 percent, according to telecom
Net debt at Oi fell 0.7 percent to 29.295 billion Brazilian
reais at the end of the third quarter.
Bava said the new group's priorities were de-leveraging via
lower network investments, cost cutting and select asset sales,
while still seeking to increase cash generation from its mobile
and fixed-line businesses.
He said the company would generate roughly $1.1 billion from
the sales of Oi's undersea cables and its fixed-network towers,
the second of which is expected to be approved by regulators by
the end of this year.
"We are also looking at options around our mobile towers,"
said Bava, referring to another possible asset sale.
Asked whether the new company would consider selling off
Portugal Telecom's African businesses, which include stakes in
operators in Angola and Mozambique, Bava was non-committal.
"Our management focus is Portugal and Brazil - in Africa,
those assets generate cash and have no debt on their books. So
frankly they will not take up a lot of my time.
"That's our institutional answer and you need to read
between the lines to what that means."
The merger of Oi and Portugal Telecom was aimed at creating
a stronger company to compete with foreign rivals in Brazil and
it will have more than 100 million subscribers and almost $19
billion in annual revenue.
The merger will generate cost savings and additional revenue
valued at about 2.4 billion, helping the new company compete in
the world's fifth-biggest wireless market.