Telecom Italia (TI) needs to cut debt by €4bn to €5bn and boost domestic performance before Moody’s will consider revising its junk status rating.
Moody’s analyst Carlos Winzer noted that such a debt reduction could be achieved by a capital…
Telecom Italia (TI) needs to cut debt by €4bn to €5bn and boost domestic performance before Moody’s will consider revising its junk status rating.
Moody’s analyst Carlos Winzer noted that such a debt reduction could be achieved by a capital increase or a combination of actions which could include asset disposals.
The TI board is meeting today to discuss proposals for reducing debt which stood at €28.8bn (US$38.8bn) at the end of June, cutting costs and boosting growth.
Directors are also reported to look at scrapping the plan to spin off the fixed-line network. It is the Italian incumbent’s first board meeting under the leadership of Marco Patuano, who replaced Franco Bernabe as CEO in early October.
The proposals are said to include a capital increase of up to €2bn (US$2.7bn) and potential disposals of assets including domestic mobile towers and the Brazilian and Argentinean units. Reuters has cited people familiar with the matter as saying Spain’s Telefonica, which intends to gradually increase its stake in TI’s largest shareholder vehicle Telco, supports the capital increase.
Moody’s would consider hybrid or convertible instruments as debt and only a straight capital increase would be treated as equity within TI’s capital structure, Winzer said.
In the past operators struggling with significant debt, such as Telekom Austria, managed to avoid a downgrade by issuing hybrid debt, which was considered partially equity for the purpose of the ratings assessment.
Moody’s, which downgraded TI’s rating from Baa3 to Ba1 with a negative outlook after Bernabe’s departure, said it would also not consider any sale of towers in Italy as cutting debt as the company would have to pay to lease them back.
In September it had been suggested that TI is looking at spinning off about 12,000 towers – potentially worth between €500m and €1bn – into a new company before selling it.
Winzer said a spin-off of the fixed line network, which the previous CEO said would go ahead, could also have a negative impact on TI’s rating given it is core to the domestic business.
Any disposal in South America would need to be “significant” to improve the telco’s credit rating, Winzer said.
Telefonica favours a disposal of TIM Brasil, in which TI holds a 67% stake, news agencies have cited people familiar with the matter as saying. However a decision is not expected to be taken on this at today’s board meeting. Reuters quoted a source who discussed the topic with Telefoncia as saying the Spanish telco aims to sell TIM Brasil in parts to different local mobile operators in order to appease the Brazilian government, which opposes price rises and would have to approve the deal.
TI directors will also reportedly discuss a potential sale of Argentinean unit Telecom Argentina.
Analysts said previously that any capital increase is likely to take the form of either a mandatory convertible or a rights issue.
