After restructuring talks with its national and international creditors failed, Brazilian telecommunications operator Oi filed a request for bankruptcy protection this Monday (20).
With debts of R$ 65.4 billion (US$ 19 billion), Oi is making history in Brazil with the largest request of this kind ever recorded. The plea for "judicial recuperation" will be judged by a bankruptcy court in Rio de Janeiro. Oi will begin a new round of negotiations with its creditors, this time, it hopes, with judicial protection against bankruptcy.
The debt is Oi's biggest problem. Brazil's largest fixed-line phone carrier has the ability to generate cash flow. In 2015, the company reported R$ 16 billion (US$ 4.7 billion) in the bank. But its debt was so great Oi was unable to raise the investments needed to compete with its rivals.
Oi's situation deteriorated following several moves to turn the company into a "super telecom". In 2008, President Luiz Inácio Lula da Silva changed the General Law for Telecommunications so that Oi could go ahead with the purchase of Brasil Telecom. Following this acquisition, Oi was able to expand throughout Brazil, with the exception of Sao Paulo which was owned exclusively by Telefônica.
A considerable part of the money involved in this transaction was used in the exchange of Brasil Telecom shares for Oi shares. During this process, a debt of roughly R$ 1.2 billion (US$ 353 million) was uncovered.
In 2010, under the watchful eye of President Lula, Portugal Telecom bought 23% of Oi's total capital. In 2014 the two networks fused. Once again, the process uncovered a hidden debt (€ 897 million), and, in total, the merging of the two companies increased the overall debt to R$ 27 billion (US$ 7.9 billion).
Folhia de S.Paulo |