August 11, 2016 / 12:58 PM / 2 years ago

UPDATE 2-Brazil Oi's in-court reorganization helps ease cash burn

(Recasts with expected easing of cash burn, adds financial details and CEO comments)

By Ana Mano

SAO PAULO, Aug 11 (Reuters) - Oi SA is expected to burn less cash this quarter thanks to a June petition to win court protection from creditors, which is temporarily sparing Brazil’s largest fixed-line phone carrier from paying debts, executives said on Thursday.

Chief Executive Officer Marco Schroeder told analysts on a conference call that planned changes in industry rules under discussion in Congress could help improve the outlook for Oi’s operations. The company released weak quarterly results earlier on Thursday.

While Oi executives declined to elaborate on the company’s in-court reorganization process, Schroeder said the bankruptcy protection filing “has so far not affected day-to-day operations.” Oi filed in June for bankruptcy protection to restructure 65.4 billion reais ($21 billion) of debt.

Preferred shares of Oi, which plans to present a reorganization plan by early September, were up 0.43 percent at 2.33 reais on Thursday.

On the financial side, the suspension of pending debt payments will allow Oi to preserve cash this quarter, Schroeder said. Oi’s cash position fell 41 percent to 5 billion reais last quarter mainly due to financial expenses and payment of a last installment on rights to operate 3G wireless licenses.

Rio de Janeiro-based Oi lost a net 656 million reais ($210 million) last quarter, worse than the consensus estimate of 256.9 million reais compiled by Thomson Reuters from analysts, in the wake of higher selling, general and administrative expenses and declining revenue.

Schroeder also urged Congress to amend Brazil’s communications industry rules, which would help ease Oi’s burden of mandatory investments. Before filing for creditor protection, Oi failed to merge with a rival partly because the rules threatened to hamper the combined entity, sources said at the time.

“The matter of the concessions by-laws worries us,” Schroeder said, adding Oi continues to defend a system that re-directs mandatory spending in fixed-line services to investments in wireless networks.

While several indicators such as churn, a measure of customer loyalty, improved in the quarter, Oi felt the pinch of government-mandated elimination of interconnection fees and the impact of the worst recession since the 1930s.

Earnings before interest, tax, debt and amortization, a gauge of operational profits known as EBITDA, slumped 24.4 percent to 1.4 billion reais, missing a consensus estimate of 1.7 billion reais. ($1 = 3.1322 Brazilian reais) (Reporting by Ana Mano; Writing by Guillermo Parra-Bernal; Editing by W Simon and Matthew Lewis)

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