Tags: TNE | BTM | AMX | PT

Oi Dials Up Interest in Brazil

By    |   Monday, 26 Sep 2011 11:45 AM

Investing in telecom companies in developing countries can be risky, but if well managed they also offer strong growth potential. This could be the case with Brazil’s Tele Norte Leste Participacoes (TNE), which owns one of the country’s leading providers of telecom services, Oi, and is making efforts to improve its corporate governance.

Oi, which means Hi in Portuguese, provides fixed-line and mobile services, data transmission, and Internet services throughout the country.

After the acquisition of Brasil Telecom (BTM) in early 2009, it became the largest landline telephone company in Brazil and the second biggest in Latin America, behind Mexico’s America Movil (AMX), based on revenues and number of lines in service.

But the company’s ownership structure is complicated, which is why Tele Norte Leste plans to simplify its shareholder structure to reduce costs and make its shares attractive to investors.

Tele Norte Leste says the changes will increase its trading volume by concentrating it all in one company. Currently, the group has three publicly traded companies: Tele Norte Leste, Brasil Telecom, and Telemar Norte Leste, with seven different classes and types of traded shares, some listed in Sao Paulo and some in New York.

The plan is to fold all three companies into a single firm, which will be renamed Oi. The group would have just one company trading on the local stock exchange and the NYSE. The company also plans to unify its financial statement and dividend policy.

In March, Portugal Telecom (PT) acquired a 25.6 percent stake in Tele Norte Leste as part of a massive capital injection to reduce debt.

Positive outlook

The company’s second-quarter net income fell 14 percent from a year earlier to $223 million as margins suffered and mobile market share slipped. Net revenue was down 4 percent from a year ago.

But the firm ended the quarter with 65.9 million customers, up 5.4 percent from a year ago, largely due to an increase in mobile and pay TV customers, the company said.

The company will invest some $3.2 billion in 2011, nearly double the amount in 2010, CFO Alex Zornig told analysts in a conference call.

In March, JP Morgan Chase & Co. analyst Andre Baggio reiterated his neutral rating on the firm’s ADRs citing "poor operating trends, overhang from the capital increase and poor corporate governance.”

Nevertheless, Fitch upgraded its rating of Tele Norte Leste and its subsidiaries to BBB from BBB-.

Fitch said in June that the rating would not be affected by the corporate reorganization plan. Fitch views the plan as positive since it will simplify the ownership structure and the financial profile with full control of the cash flows of the operating companies.

The new ownership structure should be approved by shareholders by the end of November. Tele Norte Leste reports next on or about Nov.16.

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Investing in telecom companies in developing countries can be risky, but if well managed they also offer strong growth potential. This could be the case with Brazil s Tele Norte Leste Participacoes (TNE), which owns one of the country s leading providers of telecom...
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2011-45-26
Monday, 26 Sep 2011 11:45 AM
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