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From Russia With Love

26 October 2015 by lberuti

Emerging markets have been put under pressure this year, and Brazil has been attracting headlines for all the wrong reasons. Its economy is shrinking, its inflation is quickening and its currency is weakening. But analysts expect smartphone penetration and mobile data use to grow by at least 10pct this year, and many expect some sort of consolidation in the sector. So when Oi published a statement saying that LetterOne, owned by Russian billionaire Mikhail Fridman, could inject $4bln in the company subject to a business combination with TIM Brasil, it did not come completely out of the blue. The timing came as a surprise though, and PORTEL’s (Portugal Telecom) 5 year risk premium collapsed 10pts tighter first thing this morning to finally close 6pts tighter at 24.25% upfront (+500bps running) after TITIM ( Telecom Italia Spa ), the owner of TIM Brasil, said they intend to pursue a Brazilian strategy of their own and have no plan to begin talks with LetterOne. Still, the tightening reflects observers’ view that a combination of Oi and TIM Brasil would make sense for all parties, and that LetterOne’s capital injection would meaningfully improve Oi’s credit profile.