A Hey it has lost almost 1/4 of its market value in the past week. The company started on Monday, the 19th, valued at almost R$10 billion, and ended Friday, the 23rd, at R$7.5 billion. On Monday, the tele announced its three-year plan. Who will be the Hi of 2024? Everything went very smoothly and within the script in a 25-page presentation. Up to page 24.
From that page on, which dealt with financial leverage, life would be one of explanations throughout the week, especially as the company presents itself to investors looking for US$800 million in international bonds.
Analysts and investors who bought stocks in recent months were unprepared for the reality, even though it hadn’t been hidden from anyone. When it completes the approvals for the sale of the mobile network and fiber control, Oi will have carried out an asset sale of R$34.6 billion. A company dedicated to customer service and light in assets will emerge from this process, which wants to promote accelerated growth.
But if you don’t follow very strong discipline on the financial front and don’t maintain the deleveraging process — yes, yet! — will remain a company with a lot of debt. Unsustainable. If nothing is done, Oi will have a net debt equivalent to 6.6 times the estimated Ebitda at the end of 2024.
In absolute terms, it would be a net indebtedness of almost R$14 billion — R$5.5 billion more than the market estimated. However, this is the scenario that happens if Oi does nothing about it in the coming years. And that’s not the plan. But it was a shock to the market.
the devil lives in the details
On Monday, investors were reminded that in addition to the financial debts they are used to talking about more often, when Oi comes out of bankruptcy protection it will have to deal with some other commitments. It will need to make R$1.7 billion in judicial deposits and settle R$600 million in pending matters with Fundação Atlântico — which takes care of employees’ pension funds.
When the judicial reorganization was extended by two more years, at the end of 2019, Oi did so, in part, precisely because at that time it was still facing a serious liquidity problem. Even after the implementation of the debt reorganization, with the conversion of part of the maturities into capital and the exchange of bonds. Among other things, tele would not be able, at that moment, to make the judicial deposits that it would have to resume if it left the protection against creditors. And the disputes with Fundação Atlântico have been in the plan for more than four years, class I credit, that is, linked to labor liabilities.
To complete the negative picture, the dollar continues to rise and the loan with Farallon has matured. The debt of US$ 600 million, R$ 2.4 billion at the time it was taken out, will cost around US$ 700 — but that today amounts to almost R$ 3.5 billion. In addition to the debt having a high cost, it is in dollars. This maturity will be refinanced with this new issue in progress, but investors originally expected this to be paid and eliminated out of the way.
With an accelerated investment plan, the company will have a 2021 cash consumption, not cash generation. It is far from being the year of the market’s dreams, despite the implementation of the amended recovery plan, as announced, something not trivial.
everyone was wrong a little
None of this information is exactly new to investors. But dealing with them was no longer routine. “Coincidentally, everyone made a mistake or forgot something in their account and the market was expecting a net debt-to-Ebitda ratio of 4 times for 2024,” said an analyst who prefers to remain anonymous.
O EXAME IN found that internally Oi also makes its ‘mea culpa’ of understanding that, if everyone was surprised, the communication was not good. There is a diagnosis that the investor relations area has been little active in recent months. But there was a reason for it.
In the midst of a gigantic asset sale process — one of the largest in the country — there were times when tele was under the sword of five simultaneous confidentiality agreements. Talking would be a risk. “It looked like an investment bank, not a telecom company,” commented a source familiar with the matter.
In theory, Oi’s judicial reorganization would now end in the second half of 2021. However, the process depends on the conclusion of the sale of the mobile network and InfraCo, both processes are under analysis by the National Telecommunications Agency (Anatel) and the Administrative Council of Economic Defense (Cade). So, the judicial phase only ends when the transactions are finalized and the related commitments executed.
less than half
In Oi’s view, the market ‘attached’ to the wrong information on the conference call. This is because during the presentation, President Rodrigo Abreu stated that the understanding is that a healthy financial leverage is below the 3 times Ebitda ratio, that is, a net debt of less than R$ 6 billion — less than half of the static scenario.
And the executive said that the company will make several efforts in this direction, including exchanging debt to reduce costs. The company will have to roll over debts from the judicial reorganization bonds that will expire in 2025, and from this current fundraising in progress — it starts with what comes first. As it is still on the road show, the company is not yet clear on whether the shares will have a term of three or five years.
The main and biggest move expected to cut leverage once again is to sell another stake in InfraCo, the fiber infrastructure network company in which tele has become a minority.
Private equity funds managed by BTG Actual (from the same control group as EXAME) bought the control. Oi will, in the beginning, hold 42.1% of the company of which it will also be a client. The broadband service you sell to customers will use InfraCo’s infrastructure. On the one hand, it will be a cost and, on the other, a source of resources — via dividends and the sale of shares.
The plan is that at some point an initial public offering (IPO) of InfraCo will take place. It will be a great opportunity for Oi to monetize its participation in the business. In Monday’s presentation, the tele said that its share in the business, in 2024, will be equivalent to, at least, R$22 billion.
It is worth remembering, to put all this into perspective, that Oi took R$64 billion in commitments to be reorganized in 2016 for judicial reorganization. It was the second largest process of its type in the country, only behind the group Odebrecht, currently Novonor, who came to court with maturities of R$ 98 billion, of which around R$ 55 billion were reorganized (R$ 33 billion were among the companies of the conglomerate itself). Novonor always said that Oi’s was the biggest.
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