Brazil Telecom Oi Shares Slumps on Weak 2nd Quarter Figures, Changes In Dividend Policy

    By Rogerio Jelmayer

    SAO PAULO--Shares of Brazilian telecommunications giant Oi SA (OIBR, OIBR4.BR) were dropping drastically during Wednesday morning's session after the company posted a loss in the second quarter and also decided to change its dividend policy for the next three years, paying less to shareholders.

    The company's shares were down nearly 9% at 4.10 Brazilian reais ($1.78), while the main local stock index, the Ibovespa, was up 0.03%.

    Oi, which has Portugal Telecom SGPS SA (PT, PTC.LB) as part of its controlling shareholder group, posted a second-quarter loss of 124 million Brazilian reais ($54 million), reversing a net profit of BRL347 million in the year-ago period.

    "We view these results as weak and blame it on a mix of gloomy macro and excessively aggressive offerings (which led to higher bad debt and commercial expenses) in addition to higher financial expenses from higher interest rates and FX (foreign exchange) impact," UBS said in a research report for its clients.

    Company debt service costs totaled BRL871 million in the period, up from BRL692 million in the year-ago period. Oi said that its debt service costs increased due to the rise of interest rates in Brazil and also due to the depreciation of the Brazilian real versus the U.S dollar, affecting its debt denominated in the U.S. currency.

    Oi ended the second quarter with a net debt of BRL29.5 billion, up from BRL23.5 billion in the year ago period.

    In a separate statement, the company said that it changed its dividend policy through 2016.

    "The company's board approved, for the fiscal years 2013 to 2016, dividends be paid in the estimated amount of BRL500 million, which represents approximately the minimum amount necessary to currently meet the following objectives: pay dividends in the amount equivalent to the greatest of 25% of adjusted net income for the year, or 3% of shareholders' equity, or 6% of the capital stock (opting for what is higher), and ensure equitable pay between species of preferred and common shares," the company said.

    It highlighted that the payment of intermediate or interim dividends will depend on market conditions.

    "The company remains confident about its future business prospects and believes that the increase of financial flexibility reduces financial risks and enables the company to execute its strategy and develop its business while maintaining its long-term competitive position," Oi said.

    In April 2012, the company announced the approval of it policy to pay shareholders a total of BRL8 billion in dividends by 2015.

    Write to Rogerio Jelmayer at