...Weak Financials: The Rating Watch Negative (RWN) was placed in Oi S.A.'s (Oi) ratings in February 2014 reflecting the company's weak operating results in recent quarters. The proposed merger between Oi and Portugal Telecom (both rated `BBB¡' with RWN by Fitch) is likely to be finalized in the first half of 2014, and Fitch will resolve the Negative Watch following the closing of the transaction based on the credit profile of the newly merged entity with a new capital structure. Financial Pressures in 2013: Oi's Brazilian operations are in the midst of a turn around which is taking longer to deliver and requiring heightened levels of investment. PT's domestic EBITDA declined by 9.1% in 2013, while Oi's underlying EBITDA was down 7.6% and leverage (net debt to EBITDA) was 3.9x at year end. Pro forma leverage of the post-merger group, with the absence of any material FCF, is unlikely to allow the company to deleverage for some time. Continued Margin Suppression: Fitch does not expect Oi's profitability...
