On June 20, 2016, Brazil’s fourth-biggest telecom firm, Oi, filed for court-supervised reorganization. According to Brazilian law, it means that the firm is one step away from bankruptcy and is not able to pay back its 65 billion BRL in debts. Now, Oi will present its creditors with a fifth debt renegotiation plan hoping to save what’s left of the company.
Oi’s proposal includes reducing the financial debt by 50 percent, giving bondholders up to 75 percent of the company’s shares. Last Wednesday, when the terms of the plan were first leaked to the press, Oi’s common shares crashed by 23 percent, as the debt renegotiation plan would severely dilute equity.
But why should you care if a company that was so poorly administrated went bankrupt? Well, because Brazil’s three biggest public banks are shareholders of the company – which puts them on the hook as well. If the company goes under, then the damages would be monstrous. Not to mention the impact to its 70 million customers. The company’s administration is absolutely lost, having already gone through 10 different CEOs and a split board of directors.