Bankruptcy filing by Oi rattles global telecom supply chain

Written by on June 24, 2016 in News with 0 Comments
The headquarters of the Brazil's largest fixed-line telecoms group Oi, is pictured in Rio de Janeiro, Brazil, June 22, 2016. REUTERS/Sergio Moraes

The headquarters of the Brazil’s largest fixed-line telecoms group Oi, is pictured in Rio de Janeiro, Brazil, June 22, 2016. REUTERS/Sergio Moraes

SAO PAULO (Reuters) – Brazil’s biggest bankruptcy filing ever is sending shockwaves far beyond the recession-hit country’s borders as operator Oi SA seeks creditor protection from global telecoms suppliers and export banks around the world.

Oi is seeking protection on over 500 million reais ($150 million) of accounts payable to international providers from Nokia Corp and Ericsson to IBM Corp and Alcatel-Lucent SA, according to court documents reviewed by Reuters.

The biggest Brazilian fixed-line carrier also owes about $1 billion to foreign development banks in China, Finland, Canada and Germany, which encouraged exports to Brazil during a recent surge in spending on wireless and broadband networks.

That cycle came crashing to a close this week with Oi’s record bankruptcy filing in a Rio de Janeiro court, punctuating the broader slump in a sector curtailing investments to protect profits amid Brazil’s worst economic recession since the 1930s.

While those debts to suppliers are dwarfed by more than 17 billion reais in bank loans and some 34 billion reais in bonds, they may create headaches for equipment and service providers already struggling with slumping investments in the country.

“The focus is on keeping the company working. That’s what everybody wants,” said a source close to the company. “Obviously you don’t want to affect suppliers, but that has to be discussed in court.”

Oi has refrained from making public comments while the judge in Rio evaluates its petition.

The company was expected to be the only telecom group in Brazil to raise capital spending this year, Credit Suisse Securities analysts said last month in a note that forecast an end to the industry’s recent investment cycle driven by fourth-generation mobile technology.

Although it did not announce an investment target for the year, Oi invested around 1.2 billion reais in the first three months of the year, about a quarter of the 4.5 billion reais that Credit Suisse analysts forecast for the full year.

The question facing Oi now is how to pay for already acquired equipment as it seeks an in-court reorganization of 65.4 billion reais in bonds, bank debt and operating liabilities.

Oi has made no changes to its capital spending plans and is doing everything it can to keep operations running normally, said the source, who asked not to be named given the legal proceedings under way.

Brazil’s bankruptcy protection law allows Oi to stay current on its bills going forward, but freezes all payments on services rendered before the Monday filing while creditors negotiate how to settle the debts.

Its biggest outstanding debt to a foreign supplier appears to be 129 million reais due to Brazilian subsidiaries of Finland’s Nokia, which in 2013 bought out partner Siemens AG in their network equipment venture.

Nokia’s receivables are more than twice the 53 million reais due to Chinese runner-up Huawei Technologies Co Ltd.

Asked about possible Oi-related provisions, Nokia, IBM, Alcatel and Ericsson declined to comment. Huawei did not respond to questions.

(Reporting by Brad Haynes and Ana Mano; Additional reporting by Gwénaëlle Barzic and Maya Nikolaeva in Paris; Editing by Daniel Flynn and Alan Crosby)

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