UPDATE 2-Brazil telecom Oi sinks as LetterOne drops M&A funding plan

jueves 25 de febrero de 2016 15:04 GYT

(Recasts with Oi share, bond performance; Adds details, comments throughout)

By Guillermo Parra-Bernal and Maria Kiselyova

SAO PAULO/MOSCOW Feb 25 (Reuters) - Shares and bonds of Oi SA, Brazil's most indebted telephone operator, tumbled on Thursday after Russian billionaire Mikhail Fridman's investment firm dropped an offer to finance the takeover of a Brazilian rival.

Fridman's London-based LetterOne Holdings SA said earlier that a plan to inject $4 billion into Oi had been bagged, after takeover target TIM Participações SA told the investment firm it would not participate in the deal.

The flopped merger plan forces Oi's strategic planning back to square one, as the company struggles with about 10 billion reais ($2.5 billion) in debt maturing this year, less available cash to invest and slipping revenue as a result of Brazil's deep recession.

The LetterOne proposal was seen as a lifeline for Oi, propping up shares and bonds of the Rio de Janeiro-based carrier for months. Oi's shares shed 15.4 percent to 1.71 reais, a 23-year low, on Thursday.

The price on Oi's 5.75 percent bond due in February 2022 slumped to 35 cents on the dollar, about 9 cents less than in the prior session.

"Following the breakdown of its M&A prospects, the organic route to 'safety' for Oi looks increasingly tricky and the prospect of debt restructuring more likely," said Richard Dineen, an analyst with UBS Securities in New York.

TIM shares fell 0.5 percent to 6.35 reais. Telecom Italia , which controls TIM, was up 4.3 percent at 0.90 euros a share, outperforming a 3.2 percent rise in the Stoxx Europe 600 European telecoms sector index.   Continuación...