Oi’s Largest Shareholder Seeks CEO’s Ouster After Stock Plunges

(Bloomberg) -- Oi SA’s board should replace the Brazilian telecom giant’s chief executive officer, the company’s largest shareholder said after second-quarter results showed a faster-than-expected cash burn.

GoldenTree Asset Management LP said in a letter Friday that only a seasoned operational CEO can properly execute the company’s strategic plan, in contrast to current CEO Eurico Teles, whom the firm called an “accomplished lawyer.”

“We now fear the long-term future of the company is in serious jeopardy because of poor decision-making, disappointing financial and operational performance, and a failure to apply important corporate governance principles enshrined in the plan of reorganization,” GoldenTree wrote.

Oi shares fell 2.8% to 1.06 reais at 1:21 p.m. Monday in Sao Paulo trading, extending last week’s 29% drop -- the worst weekly retreat since 2016.

The company on Wednesday posted a loss of 1.56 billion reais ($390 million) and said it burned about 2 billion reais of cash in the second quarter. Investors, still recovering from the company’s $19 billion debt restructuring in December 2017, fretted when Chief Financial Officer Carlos Brandao mentioned a potential capital increase as an option to boost liquidity. GoldenTree is also asking that Brandao be replaced.

The Rio de Janeiro-based company issued a statement Friday evening expressing confidence in its cost-control efforts and planned sale of noncore assets. Investors, nevertheless, have continued to pressure the stock.

Oi’s shareholding structure changed completely in the last two years, as a result of its efforts to restructure its huge pile of debt. GoldenTree, formerly among Oi’s biggest bondholders, became the top shareholder after the 2017 restructuring. It holds 15% of the equity.

Teles took the helm in November 2017, after the former CEO suddenly exited, and got creditors’ approval for the restructuring plan less than a month later. The agreement required that the C-level management stay for at least one year, while the plan was implemented.

“Cash is being burnt at a faster-than-expected pace,” said Leonardo Rufino, a Rio de Janeiro-based portfolio manager at Pacifico Gestao de Recursos who has a small position in Oi on his portfolio.

‘On Track’

While Brandao reiterated the company was “fully on track” to sell its stake in Unitel SA, Angola’s largest wireless operator, in the fourth quarter, he also mentioned “issuing secured debt, capital raise and vendor financing” as alternatives the company is analyzing in case the expected sale falls apart.

That was enough to spark a two-day stock rout that wiped out almost a third of the company’s market capitalization and reversed its year-to-date gains. Brazilian telecom regulator Anatel denied a report Friday that it was considering intervening with Oi, but that did nothing to pump up the stock.

“We have become concerned about Oi’s intention to accelerate its capex investment plan, despite cash burn of about 2 billion reais in 2Q19, as it depends on the successful conclusion of asset sales,” Bradesco BBI analysts led by Fred Mendes wrote in a report Thursday, reaffirming a neutral rating for the stock.

In mid-July, Oi outlined a turnaround plan in which it aims to sell 6.5 billion reais to 7.5 billion reais in noncore assets, including Unitel. “We believe the trigger for the stock will be the implementation of its strategic plan, particularly the materialization of the noncore assets sales, rather than quarterly results,” Itau BBA analysts led by Susana Salaru wrote in a report Thursday.

To contact the reporters on this story: Vinícius Andrade in São Paulo at vandrade3@bloomberg.net;Fabiola Moura in Sao Paulo at fdemoura@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, John J. Edwards III

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