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UPDATE 2-Brazil's Oi creditors shun debt plan, warn of lengthy legal feud

(Adds background, share performance throughout)

SAO PAULO, Oct 13 (Reuters) - Oi SA's revamped restructuring plan fails to address most creditor concerns and may unleash a legal battle or government intervention to avert a collapse of Brazil's No. 4 mobile phone carrier, two people with knowledge of the matter said on Friday.

According to the people, the plan approved by Oi's board on Wednesday contains conflicts of interest and gives too much control to Societé Mondiale FIA, which despite having 6.5 percent of Oi's voting capital has amassed great power. Societé Mondiale is controlled by Brazilian businessman Nelson Tanure.

Earlier on Friday, Oi's largest bondholder groups and export credit agencies rejected the carrier's management-proposed restructuring plan, saying it "ignores fundamental creditor concerns, threatens the company's long-term viability and abusively enriches existing shareholders."

The people, who are familiar with government and private-sector creditor strategies, reckon the only feasible solutions for Oi seem to be a state seizure of the carrier's licenses or a protracted legal battle. Friday's statement laid bare creditor animosity for Tanure, an investor with a mixed and litigious track record in past restructurings.

Calls to Tanure's representatives were not immediately answered. Oi's media office declined to comment.

Common shares rose the most since April, adding 11 percent, in a sign investors expect Tanure and other large shareholders to fight any dilution attempt from creditors at a Oct. 23 recovery plan vote. Preferred shares soared more than 20 percent.

Oi's revamped plan aims to restructure 65.4 billion reais ($21 billion) of debt, including a 9 billion-real capital increase. Under the proposed terms, Oi would sell 6 billion reais of new shares to current bondholders and other investors and swap some debt for no more than 25 percent of capital.

The steering committees of Oi's two largest bondholder groups and the credit agencies in August put together an alternative proposal to exchange up to 26.1 billion reais of their debt into common shares, representing 88 percent of Oi's capital.

Analysts at Itaú BBA led by Susana Salaru estimated that Oi management's proposed capital hike would represent a premium of 42 percent over current prices, while imposing a 73 percent loss on bondholders.

"The equity upside potential is thus directly associated with the capital increase materializing, and we have limited visibility on that, given the high price premium," Salaru wrote.

INTERVENTION

Oi's in-court reorganization, the nation's largest ever, has been marked by disputes between management, bondholders and regulators. Local media reports have repeatedly raised the possibility that the federal government could intervene to avoid a messy bankruptcy.

In Brazil, shareholders have the right to help shape and vote on restructuring plans, unlike the United States, where they come last and may not have voting rights at all.

"Under Tanure's auspices, Oi has engaged in spurious talks with conflicted creditors who also hold Oi's shares, in order to preserve value for existing shareholders," said one of the people, who requested anonymity to discuss the matter freely.

Newspaper Valor Econômico on Friday said that two European export-credit agencies emailed four of President Michel Temer's cabinet ministers to complain that the restructuring plan benefits only current shareholders. (Editing by Bernadette Baum and James Dalgleish)