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SAO PAULO, Sept. 2 (Reuters) - Growing tensions over Oi SA's bankruptcy process are driving some bondholders to court Brazil's government as an ally against several investors whom they view as a threat to the phone carrier's survival.
Private creditors and their advisers have been meeting in recent weeks with cabinet members, state-controlled bank executives and industry watchdog Anatel about heading off rogue investors who may try to break the carrier up in the middle of Oi's reorganization, seven people directly involved in the process have told Reuters.
The push to find common ground with the government comes after Brazilian officials pledged in June to keep their distance when Oi filed for bankruptcy protection in June after talks to restructure 65.4 billion reais ($20 billion) in debt collapsed.
The stakes are high. Oi is Brazil's largest fixed-line carrier, employs some 140,000 people and is the only phone company in 1,800 Brazilian towns, or about one-third of the nation's 5,500 municipalities. Several state banks have lent billions in reais to Oi, leading creditors and government officials to discuss options ahead of the presentation of Oi's recovery plan expected late next week.
"We envision a plan in which private creditors bear losses accordingly with their risk-taking, and no predator shareholder prevails," said a senior government official who asked for anonymity because the matter is sensitive. "The ideal would be for everyone to understand that the new Oi must provide services with quality."
The prevailing view among state agencies is that some of the activist investors seeking control of Oi through litigation want the state banks acting as the carrier's lenders to take heavy loan losses - a situation the official described as "worrying."
A recent plan by Brazilian distressed debt investor Nelson Tanure and his partners in fund Société Mondiale FIA to oust part of Oi's board and present a parallel recovery plan involving the disposal of some non-essential assets has particularly spooked some in the government, some of the people involved said.
While there is nothing unusual in Anatel wanting Oi to stay as a stable industry player, or in state banks seeking to minimize potential losses, their backstage role reflects the government's push to protect jobs and avert service disruptions as Latin America's biggest economy struggles with a harsh recession, the people said.
Still, Anatel's official mandate only allows it to bar a bidder that already owns an existing telecom operator in Brazil, which is not true of any of the known potential acquirers.
Rio de Janeiro-based Oi owes Anatel and lenders Banco do Brasil SA, Caixa Econômica Federal SA and BNDES a combined 20 billion reais ($6.2 billion) - making the government the carrier's No. 2 biggest creditor after bondholders. That debt includes back fines, loans and licensing fees. For a graphic, click tmsnrt.rs/2bTSB2b
Communications Minister Gilberto Kassab told Oi Chief Executive Officer Marco Schroeder at a meeting on Monday that the government is mainly concerned about assuring continuity of the company's services during the process.
In a statement that day, Kassab said that the outcome of Oi's recovery and a planned regulatory and industry revamp will determine the fate of an industry braced for consolidation in the long run.
Along with the sheer size of its claims, the government holds a major trump card: the ability to push for a thorough congressional revision of industry rules that rids Oi of mandatory spending in costly fixed-line infrastructure - a precondition for the reorganization to succeed.
The government could forego the spending requirements provided that Oi has a "credible investment plan" to enhance service coverage, the senior government official said. While Congress operates independently of the executive branch, President Michel Temer's PMDB party is the biggest in the legislature.
Press representatives for Brasilia-based Anatel and state lenders Banco do Brasil SA, Caixa Econômica Federal SA and BNDES declined to comment, as did Brazil's communications ministry. Tanure and Société Mondiale declined to comment, as did Oi.
In a statement to Reuters, Oi's majority shareholder Pharol said it is "ready to negotiate with the different parties taking part in Oi's recovery plan as long as the rights of all shareholders are preserved."
The reorganization has done little to calm tensions over Oi's future, with creditor Aurelius Capital Management LLC forcing Oi's Netherlands-based subsidiary to seek creditor protection and Tanure fighting Oi's board members.
To be sure, previous attempts by the government to meddle in the reorganizations of power firms Celpa SA and Grupo Rede Energia SA cost bondholders enormous losses less than four years ago. Yet, more Oi creditors, potential new investors and minority shareholders say they want Anatel and other state agencies in their corner.
Anatel, for instance, could allow Oi to swap part of its 10 billion-real debt to the regulator for new investments, two senior government officials said. Such a move needs the approval of the nation's budget auditing court.
The government's clout in the Oi bankruptcy was also shown by a move in recent weeks by a group of over 80 bondholders to launch talks with BNDES, Caixa and Banco do Brasil on a common stance in formulating Oi's recovery plan.
Reuters reported on Aug. 16 that the Moelis & Co-advised group has discussed with the lenders whether to give Oi a grace period of at least five years and cut borrowing costs on some debts.
"It's not that every agency we talked to is following a common script, but certainly they have a clear idea of what's good for Oi, the industry and the government," according to a person familiar with the bondholder group's strategy.
Likewise, New York-based boutique investment bank AGCM Inc, which is representing a group of potential bidders for Oi, has decided to hold off on a takeover proposal until it can present the plan to relevant state entities - creditors and shareholders alike - involved in the reorganization, one of the people said.
AGCM and Moelis declined to comment.
($1 = 3.2264 Brazilian reais)
Additional reporting by Tatiana Bautzer in São Paulo and Leonardo Goy in Brasilia; Editing by Christian Plumb and Edward Tobin