November 23, 2017 / 3:34 PM / 25 days ago

Oi seeks to woo public banks, export credit agencies -sources

RIO DE JANEIRO, Nov 23 (Reuters) - The board of Brazilian telecoms company Oi SA is trying to assemble a coalition dependent on public sector creditors to pass its restructuring plan in the face of serious opposition from private bondholders, three sources with knowledge of the board’s strategy told Reuters.

At the behest of shareholder Nelson Tanure, the board is offering deals to state banks Caixa Economica Federal and Banco do Brasil SA in which their debts would be repaid at their full nominal value but over a longer period of time, said the sources, who requested anonymity due to the sensitivity of the issue.

Under the proposal from the board of Oi, which began an in-court restructuring 17 months ago, the company would be given a six-year grace period before making most payments and then would have an additional 10 years to pay off the bank debts in full.

In order to sweeten the deal, the board recently agreed to pay a fraction of the interest annually during the initial six-year period, a source added.

The board is offering similar deals to the investment banking unit of Brazil’s largest private lender, Itaú Unibanco Holding SA, as well as Finnish, Belgian, and Chinese export credit agencies.

Together, those creditors held about 11 billion reais ($3.4 billion) in debt as of a May court filing, from a total of roughly 65 billion reais in debt under bankruptcy protection - the largest such proceedings ever in Latin America.

Oi, Banco do Brasil, Itaú and FTI Consulting, which represents export credit agencies, declined to comment. Caixa did not respond to requests for comment.

The board’s strategy of targeting specific creditors shows how it hopes to win the support needed to restructure Oi’s debts despite a frosty relationship with major investors holding billions of dollars of bonds.

The sources said that in addition to getting support of those specific creditors, the board believes it needs the support of 20 percent to 25 percent of major private bondholders to pass its plan.

Oi’s two biggest bondholder groups, which include distressed debt titans Aurelius and Goldentree, have publicly opposed the board’s plan. Press representatives for the groups declined to comment.

After a year and a half of legal wrangling, creditors are set to vote on Dec. 7 in Rio de Janeiro on a final plan to take the carrier out of bankruptcy protection. Under most scenarios, Oi’s proposal needs the approval of roughly a majority of creditors by value to take effect.

Beyond the billions of dollars at stake, the creditors’ meeting could decide the fate of the telephone operator, which employs more than 100,000 people and provides the only fixed-line service to about a third of Brazil’s 5,500 municipalities.

COALITION BUILDING

Negotiations ahead of the vote have split into three tracks in recent months.

The two largest groups of private bondholders, which own about 22 billion reais in debt, have put forth a proposal in which creditors would trade their debt for 85 percent of Oi’s equity.

The government, which is exposed to billions of dollars of Oi debt through state banks and unpaid regulatory fines, has formed a working group of its own, with the implicit threat of state intervention if talks fail.

The board, meanwhile, has allied with a small group of private creditors known as the G6, who have a fraction of the debt held by the main private bondholder groups. Under the board’s plan, bondholders would take a much smaller share of Oi’s equity.

In addition to wooing public institutions, Itaú and some opposing bondholders, the board sees it as important to win the support of relatively small suppliers unaffiliated with any major bondholder group that hold about 2 billion reais in debt, the sources added.

The board also considers it unlikely that state development bank BNDES, which holds 3.33 billion reais in debt, will stand in the way of any plan, given that the bank is expected to be paid back in full due to its special status under law. BNDES declined to comment.

If creditors do not agree to a restructuring plan at the Dec. 7 meeting, the talks may continue on Dec. 8. Failing that, they will continue on Feb. 1 and 2.

If creditors vote down the company’s restructuring plan, Oi could be liquidated, a situation all parties want to avoid, the sources said, as lenders and shareholders stand to lose more under liquidation than under any proposed restructuring.

$1 = 3.23 reais Reporting by Gram Slattery; Additional reporting by Tatiana Bautzer in Sao Paulo; Editing by Brad Haynes, Daniel Flynn and Dan Grebler

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