In a release issued late on February 27, Embratel announced an agreement with 25 creditors, mostly foreign banks, to refinance some 750 million US Dollars due in the next 15 months. Tenors have been extended to the second half of 2004 and various dates during 2005. In exchange Embratel has agreed to pay 10% of the total on the original due dates and offered additional security linked to future revenue from provision of services to some of its best corporate customers. The names of these customers haven?t been disclosed. The banks have also won an option to translate foreign-currency loans into local currency on the original due dates, in which case they will bear interest at the local interbank rate (CDI) plus 4% per annum. The debt in US Dollars and Japanese Yens bears LIBOR plus 4%.
Breathing space
Equity analysts say the agreement gives Embratel a breathing space until the end of this year but doesn?t provide a definitive solution to its problems. ?They?ve managed to gain time, possibly counting on revenue from local telephone service to refurbish their finances in the medium to long term,? says an analyst. ?But Embratel?s problems aren?t confined to debt. It has operating difficulties, especially the excessive cost of interconnection. That?s why its EBITDA margins are too low compared with other telcos,? explains André Querne, an analyst with Máxima Asset Management.
For the market, debt rescheduling could be the first step toward the sale of Embratel. With more time to repay debts, it?s more attractive to prospective buyers.
