The Zika virus. Rio claiming it’s in financial ruin. President Dilma Rousseff in the midst of being impeached. The supercomputer studying the Zika virus shutdown because there isn’t enough money to keep it running. The stadiums aren’t ready for the Olympics in August. Rory McElroy pulling out because of the aforementioned virus. Swimming pools filled with sewage water. An economy staggering towards collapse. What else could go wrong for the B in that silly acronym BRICS? Oh yes, why don’t we add to that: Brazil’s latest and biggest bankruptcy.
Shares of the telecommunications company Oi SA plummeted after the company announced that it was seeking the protection of bankruptcy. A company whose ADR (OIBR) that traded back in June 2011 at $308 a share last traded at $1.92. Oh how the mighty have fallen. As expected, most rating agencies downgraded Oi’s debt, but more important is how far and wide the ripple effects of this bankruptcy will reach.
On the negative side, those companies that currently own debt in Oi may have to take a write down. Pimco, Citidel, and Wellington Management, and those are just the larger players in the bond market. There are also banks that may have to take a hit such as Santander. According to the Wall Street Journal, Black Rock and the Ontario Teachers Pension Plan could also stand to lose.
On the plus side though, this may be a buying opportunity because Oi’s competitors stand to take advantage of their bankruptcy. I would look at America Movil SAB de CV (AMXL:MM), which operates all throughout Latin America, currently trading on the Mexico stock exchange, Telefonica Brasil SA_ (VIV:US) and lastly TIM Participacoes SA (TSU:US). It is my belief that these three companies are in a position to take advantage of the failure of Oi, which took on too much debt in 2009 in order to grow through acquisition rather than organically. However, I now learn that Egyptian billionaire, Naguib Sawiris has said that he is prepared to invest in Oi and the reason he gave according to Bloomberg is, “Oi has great potential once its debt is restructured and provided the company gets a capital increase and a strong industrial plan.” Sounds interesting to me, and for those with a cast iron stomach this maybe the time to buy the stock.
So finally I have to ask myself with all this disaster besting Brazil will they ever find their way out of this quagmire? I am not sure of the answer because as long as they keep electing duds and keep expecting different results nothing is going to change. Is the failure of Oi a symptom of an even bigger problem in Brazil? The answer I am sad to say is yes. If only they would look to countries like Peru, Colombia, and Argentina to realize that there is a better way. I really hope that one day they do before it is far too late.