Bloomberg | February 20, 2011 | Felipe Frisch and Fabiola Moura
Tele Norte Leste Participacoes SA, the holding company that controls Brazil’s largest fixed-line telephone service provider and the most-indebted telecommunications operator in Latin America, says it will cut obligations relative to earnings by 50 percent this year. Bondholders aren’t convinced.
The company’s 5.5 percent bonds due in 2020 lost 2.4 percent in the past month, compared with an average 0.4 percent drop for Brazilian companies included in JPMorgan Chase & Co.’s CEMBI index. The yield rose to 6.02 percent on Feb. 10, the highest level since Dec. 20 and up from 5.67 percent on Jan. 21.
Chief Financial Officer Alex Zornig said Tele Norte Leste, operating under the Oi brand, plans to cut debt per earnings before interest to less than 1.7 by the end of 2011. The company will use some of the 11 billion reais ($6.6 billion) it aims to receive from share sales to investors and Portugal Telecom SGPS SA by March 31 to help pay or refinance 7 billion reais in debt coming due, he said in an interview. Obligations total 3.8 times Ebitda, the highest in the region for telecom companies valued at $200 million or more, data compiled by Bloomberg show.
“The fact that they are receiving money doesn’t prove they’re going to use that money well,” Vinicius Pasquarelli, an emerging-market debt trader for Tradition Asiel Securities Inc., a unit of Lausanne, Switzerland-based inter-dealer broker Compagnie Financiere Tradition SA, said in a telephone interview from New York. “So that makes the risk of the credit very tricky.”
Investment Grade
Foreign bonds sold by Latin American telecom companies yielded an average 5.87 percent as of Feb. 17, according to Credit Suisse Group AG. The Brazilian company’s yields compare with the 4.33 percent rates on investment-grade telecom bonds in the U.S. market, according to Bank of America Corp.
Bonds issued by Telemar group, which includes Tele Norte Leste and Telemar Norte Leste SA, carry investment grade ratings from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.
Long-term borrowings of Rio de Janeiro-based Tele Norte Leste almost tripled to 22.8 billion reais in the third quarter of 2010 from the same period three years earlier, after the company agreed to take over former rival Brasil Telecom SA in 2008, according to data compiled by Bloomberg.
…..
