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NEW YORK, Feb 25 (IFR) - Bonds issued by Brazilian wireless carrier Oi suffered multi-point declines on Thursday on news that merger discussions with larger rival TIM had collapsed.
The company's 2020s were down some 14 points on the day to hit 41.00-42.50, while the 2022s fell 11 points to be quoted at 35.00-36.50, according a New York based trader.
LetterOne, which is controlled by Russian billionaire Mikhail Fridman, said last year that it would invest up to US$4bn in Oi if it merged with its rival TIM Participacoes.
But ultimately TIM rejected Oi's advances, leaving LetterOne to back away from the deal.
Analysts at Barclays thought that the agreement between Oi and LetterOne, which was due to expire on May 23, would in any case have come with conditions given the Brazilian company is still struggling with a heavy short-term debt burden.
"We question whether LetterOne could make this contingent on bondholders potentially first taking a haircut, particularly since we believe Oi will need to increase investments in its network to keep pace with peers...," the UK bank said in a report on Wednesday.
Fitch said earlier this month that failure to merge with TIM would threaten to lower Oi's ratings into the single B category.
Oi has been looking to secure additional funding to cover short-term debt maturities, including credit lines from banks and a US$1.2bn facility from the China Development Bank, Barclays said.
"These additional lines would allow Oi to kick the can down the road with the company facing a potential liquidity shortfall in 2017, rather than late 2016," it said. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)