Brazil's Oi confident it can fund mobile deals if needed: CEO

By Leila Abboud

BARCELONA (Reuters) - Brazil's largest fixed telecom group Oi said it is confident it could raise cash if it decides to pursue acquisitions to bolster its share of the mobile market following its merger with Portugal Telecom.

Zeinal Bava, who became chief executive of the combined Oi and Portugal Telecom after their merger was announced in October, did not rule out a share sale to fund mobile deal-making or to reduce the new company's debt.

Speaking at a conference on Wednesday, Bava said he did not feel "comfortable" with the group's debt levels after the deal, which will be roughly 3.2 times core annual profit.

"Of course, we do not feel comfortable about this level," he said, adding that the market would probably prefer debt levels to be closer to 2 times core profit.

The merged company would need to raise cash to fund any major acquisitions in Brazil's mobile market, which is dominated by four players but could be reduced to three next year if market leader Telefonica pursues a break-up or sale of third-place Telecom Italia's Tim Brasil.

Analysts and telecom bankers have said that Oi, ranked fourth in the mobile market, could buy part of Tim Brasil along with rivals if it were broken up. None of the main players in Brazil could buy all of Tim Brasil, which analysts value at around 8.9 billion euros, because of antitrust concerns.

Telefonica is the largest shareholder in Telecom Italia so has a say over the group's strategy in Brazil even though they are rivals there. Sources earlier told Reuters that Telefonica aims to sell Tim Brasil in the second half of 2014.

"We will continue to monitor what happens in Brazil," Bava said. "We have the ability to look at acquisitions if we want to, but right now our focus is to simplify our corporate structure by finalizing the merger. Once we do that we can look at other things."

The Oi-Portugal Telecom merger is expected to be completed in the first half of next year.

Asked whether a mobile deal would require additional funding, Bava said: "It all comes down to how much it costs. But if we need capital to consolidate and on the back of that we can prove to the market that we can generate synergies, I believe raising it will not be an issue."

Even without acquisitions Oi would be able to grow its mobile business by focusing on the pre-paid market and targeting certain regions like southern Brazil where its market share is too small, he said.

COST CUTTING

Oi lags rivals in the rapidly expanding mobile sector and is losing customers. Vivo holds a 28.7 percent market share, Tim Brasil holds 27.2 percent, while America Movil's Claro has 25 percent and Oi has 18.6 percent, according to telecom regulator data.

Net debt at Oi fell 0.7 percent to 29.295 billion Brazilian reais at the end of the third quarter.

Bava said the new group's priorities were de-leveraging via lower network investments, cost cutting and select asset sales, while still seeking to increase cash generation from its mobile and fixed-line businesses.

He said the company would generate roughly $1.1 billion from the sales of Oi's undersea cables and its fixed-network towers, the second of which is expected to be approved by regulators by the end of this year.

"We are also looking at options around our mobile towers," said Bava, referring to another possible asset sale.

Asked whether the new company would consider selling off Portugal Telecom's African businesses, which include stakes in operators in Angola and Mozambique, Bava was non-committal.

"Our management focus is Portugal and Brazil - in Africa, those assets generate cash and have no debt on their books. So frankly they will not take up a lot of my time.

"That's our institutional answer and you need to read between the lines to what that means."

The merger of Oi and Portugal Telecom was aimed at creating a stronger company to compete with foreign rivals in Brazil and it will have more than 100 million subscribers and almost $19 billion in annual revenue.

The merger will generate cost savings and additional revenue valued at about 2.4 billion, helping the new company compete in the world's fifth-biggest wireless market.

(Editing by Susan Fenton)