ADRs in Focus: Brasil Telecom falls on downgrade

ADRs of Brasil Telecom fell $6.35, or 7.5 percent, to $78.25. ADRs, or American Depositary Receipts, are securities designed to allow U.S. investors to trade shares of companies based overseas.

Andre Baggio cut Brasil Telecom to "Underweight" from "Neutral" in a note to investors Friday. He said Brasil Telecom shares trade at an unreasonable premium to shares of Brazilian phone company Tele Norte Leste Participacoes, or "Oi," and shares will likely fall as the deal goes through.

In addition, Oi has a "poor track record in corporate governance," Baggio said. He rates the company "Neutral." ADRs of Oi gained 21 cents to $25.67.

On Thursday, Brazilian telecommunications regulator Anatel announced a rule change allowing fixed-line telecoms to operate in more than one region of Brazil. The change paves the way for the merger between the two companies.

Oi said in April it would pay $3.5 billion for control of Brasil Telecom in a government-backed deal that could create a huge fixed-line operator spanning much of Brazil.

The broader Brazilian telecommunication sector was mostly higher despite the downgrade. Vivo Participacoes SA added 32 cents, or 5.6 percent, to close at $6.01. TIM Participacoes rose $1.31, or 4.8 percent, to $28.50. Telemig Celular Participacoes SA lost 18 cents to end at $58.70.

The Bank of New York Telebras ADR Index rose 0.01 points to 92.75.

Meanwhile, The Bank of New York Latin America ADR index added 2.52 points to 463.53 and the Bank of New York Composite ADR Index rose 2.03 points to 172.46.