Telecom Italia (TI) has placed €1.3bn (US$1.75bn) of fixed-rate mandatory convertible bonds due November 2016.
The bonds, convertible into ordinary shares, will carry a coupon of 6.125% per year, the Italian incumbent announced today. The bonds will…
Telecom Italia (TI) has placed €1.3bn (US$1.75bn) of fixed-rate mandatory convertible bonds due November 2016.
The bonds, convertible into ordinary shares, will carry a coupon of 6.125% per year, the Italian incumbent announced today. The bonds will be registered in denominations of €100,000 and issued at 100% of the principal amount.
The initial maximum conversion price is set at 122.5% of the minimum conversion price, which will be set after the Italian bourse closes today (8 November).
Settlement is expected to take place on 15 November and an application to admit the bonds to trading on a yet-to-be-determined internationally-recognised stock exchange will be made by 15 March 2014.
Proceeds of the bonds, issued by subsidiary Telecom Italia Finance and guaranteed by the parent company, are to be used for general corporate purposes. They may not be used to provide any form of financing.
Announcing the convertible bonds’ launch yesterday, TI said it would issue savings share bonds as well as ordinary share bonds. However, the Milan-based telco said today that it decided not to go ahead with the former because of the demand for the latter.
In yesterday’s statement, TI said it will convene an EGM before the end of February 2014 to seek shareholders’ approval to issue additional ordinary shares for the bond conversions. If such approval is not obtained, TI may elect to redeem the bonds at 102% of the principle amount plus accrued interest. If the conversion value of the bonds being redeemed exceeds their initial conversion value, they will be redeemed at 85% of the current value minus the initial value.
Meanwhile, Spain’s Telefonica, the controlling investor in TI’s dominant shareholder Telco, said on a conference call today that it had bought €103m of the convertible bonds to mitigate dilution of its stake in TI resulting from the associated capital increase.
Today, TI, working to cut debt which stood at €28.23bn at the end of September, also published details of its new strategic plan, which may lead to disposals of its stake in Telecom Argentina, mobile towers in Italy and Brazil and local TI Media multiplexes.
Commenting on the convertible bond offering in a statement, Fitch said its initial view is that it would not qualify for any equity credit under its hybrid methodology and would not therefore help to reduce TI’s leverage. However, the ratings agency said potential disposals, such as that of its stake in Telecom Argentina, may reduce leverage by around 0.2-0.3x. In Fitch’s view, tower sales in Italy and Brazil would not necessarily reduce leverage as incoming cash could be offset by increased operating leases. The agency said TI has limited headroom at its BBB-/negative rating, largely due to weakness in the domestic business.
Yesterday, Moody’s analyst Carlos Winzer told TelecomFinance that TI would need to cut debt by €4bn to €5bn and boost domestic performance before the agency would consider revising its junk status rating. Winzer also said Moody’s, which downgraded TI’s rating from Baa3 to Ba1 with a negative outlook in early October, would consider convertible or hybrid instruments as debt and only a straight capital increase as equity.
Yesterday, TI reported revenues of €6.63bn for Q3 2013, down 1.1% in organic terms compared with Q3 last year. Revenues for the first nine months of this year totalled €20.39bn, down 2.1% year-on-year. EBITDA for Q3 2013 stood at €2.70bn, down 7.1% compared with Q3 last year. EBITDA for the first nine months of 2013 stood at €7.93bn, down 6.9% on the Q3 2012 result.
