Oi’s problems began during the policy of national champions; remember the 1st judicial recovery

by

Just over a month after ending a court-supervised reorganization process, Oi went to court this Wednesday (1st) to prevent its assets from being blocked by creditors, signaling that it should file a new operation to try to get back on its feet.

The company, which declares debts of around R$ 29 billion, argues that the first judicial recovery was “unquestionably successful”, but that its financial situation, combined with unpredictable factors, makes it essential to resort to a second restructuring.

If confirmed, Oi would be the only one among large companies to undergo two such processes. In fact, the company would appear twice on the list of the five biggest recoveries in the history of Brazil: in second and fifth place, respectively.

The first time, Oi owed BRL 65 billion. The case is second only to that of Odebrecht, which totals BRL 80 billion in liabilities and is still in progress. However, considering the number of creditors (around 55,000), the tele process is considered one of the largest in the history of Brazil.

Oi’s judicial recovery began in 2016, but the crisis that led to the request began much earlier, in the 2000s.

Financial problems arose after a series of decisions that intended to transform the company into a great leader in the sector. The effort was part of the national champions policy of the first PT governments.

In 2008, President Luiz Inácio Lula da Silva —in his second term— changed the General Telecommunications Law so that Oi would buy Brasil Telecom.

Without going through Congress, Lula signed a decree allowing the merger of the two companies. The rule in effect at the time prohibited a controller from owning two fixed telephone concessionaires.

The argument for transforming Oi into a national super telephony was that the sector was being invaded by foreign companies.

Although criticized, the government’s decision prevailed and Oi began to operate throughout the country, with the exception of São Paulo — one of the main markets.

However, in the middle of the merger process, a debt of around R$ 1.2 billion arose. The problem would get worse years later.

In 2010, Portugal Telecom bought 23% of the total capital of Oi, culminating in the merger of the two companies in 2014. Another debt, of 897 million euros (R$ 4.894 billion), arose.

The merger of the telecoms also involved the transfer of assets from the two companies to a new company. Years later, minorities accused the Portuguese of contributing overvalued assets, such as concessions in Africa, and liabilities maturing in the short term.

The operation was considered the push for the request for judicial recovery, in 2016.

For economic analysts, the project to create a national supertele generated an escalation of debt, and the case was considered a landmark of the failure of the policy to create national champions.

The beginning of Oi’s first judicial recovery

The recovery process took place with the 7th Business Court of Rio de Janeiro, the same to which the guardianship request this Wednesday was sent.

At the time, the company owed BRL 65 billion to 55,000 creditors, including employees, suppliers, banks and international investors.

At first, the company negotiated with around 30,000 small creditors, who had less than R$50,000 to receive.

The path to approval of the recovery plan was troubled, full of ups and downs. The meeting with creditors, for example, was postponed four times, for various reasons, including the disagreement of some interested parties.

The meeting was held in December 2017, one year after the recovery request, and became the largest creditors’ meeting held in the country. There were more than 600 people registered, in a meeting that lasted 15 hours. The operation was set up in a 22,000 square meter pavilion at the Riocentro convention center.

The assembly approved the proposal presented by Oi and, in the following month (January 2018), the Justice approved the plan.

Marcela Cavallo, specialist in business law at Zilveti Advogados, defended some of Oi’s creditors during the process.

According to her, the operation went very smoothly, despite being the largest judicial recovery in the country. “Procedurally speaking, there were no major developments,” she says.

The lawyer recalls that Oi had the advantage of having many assets to face the debt and presented a solid restructuring plan.

The asset sale was approved by creditors in September 2020. Three months later, in December, Oi auctioned its mobile phone network for BRL 16.5 billion. However, the division between Claro, Vivo and Tim only happened in February 2022, after a long process at Cade (Administrative Council for Economic Defense).

In July 2021, the company sold its fiber optic unit for almost R$ 13 billion. Months later, he negotiated 8,000 telephone towers for R$ 1.7 billion.

The end of the recovery process

Oi’s judicial recovery ended in December, after more than six years of negotiations.

“The most impactful and relevant process of judicial recovery of the Brazilian judiciary comes to an end, and one of the most complex cases in the contemporary legal world”, wrote, at the time, judge Fernando Viana.

In a statement on the website, Oi said that the closure of the operation represented the conclusion of a cycle, during which the company was able to restructure itself. However, he stressed that the work was not finished.

“Much remains to be done and Oi is ready to explore all the alternatives made available to improve its debt profile”, says the text.

At the end of the process, Oi’s net debt was reduced to R$18.3 billion.

According to Cavallo, although the company fulfilled what was proposed in the recovery plan, it left very weak.

The lawyer recalls that a lawsuit encompasses the debts that exist up to the time of the request. Subsequent liabilities do not enter into the agreement.

Therefore, the new request for judicial recovery, if it happens, should be focused on renegotiating the “new debts” —accumulated after 2016.

The problem is that, unlike the first recovery, Oi no longer has such a comfortable position in terms of assets to face the debt.

According to Cavallo, a new process should be more difficult. Like Americanas, the company must seek investment from investors. “Two requests so close generate distrust as well”, he ponders.

You May Also Like

Recommended for you