The Telecom Italia (TI) board has approved a three-year strategic plan designed to raise up to €4bn (US$5.3bn) through a €1.3bn convertible bond issue and asset sales.
The aim is to help the company reduce its net debt, which at the end of September…
The Telecom Italia (TI) board has approved a three-year strategic plan designed to raise up to €4bn (US$5.3bn) through a €1.3bn convertible bond issue and asset sales.
The aim is to help the company reduce its net debt, which at the end of September stood at €28.23bn, generally strengthen the balance sheet and pave the way for future growth.
The Italian incumbent released details of the highly-anticipated plan after market close yesterday, shortly after announcing the €1.3bn convertible bond issue, which has now been placed. The Milan-based company said its board has authorised management to finalise the sale of its 22.7% stake in Telecom Argentina after receiving an unsolicited bid. CEO Marco Patuano told reporters today that the offer is worth about US$1bn.
TI, which held its first board yesterday since Marco Patuano’s appointment as CEO, said it is also looking a valuation of towers in Italy and Brazil, which analysts have valued at up to €2bn, as well as of domestic TI Media multiplexes.
TIM Brasil, the Brazilian subsidiary of TI, issued its own short statement saying there is no agreement in place regarding the sale of its mobile towers. But the company added that it is conducting an analysis of options to “unlock” the value of the asset, which include a potential sale or partnership.
Commenting on the 2014-2016 plan, which will also see TI invest €9bn in Italy, Patuano said it includes “extraordinary transactions” aimed at strengthening the group.
“These will allow us to boost development of ultra-broadband and accelerate our converging business strategy, and to achieve greater financial flexibility preparatory to achieving metrics over the life of the plan that are coherent with investment grade status,” he commented.
Of the €9bn to be invested in Italy over the three years, €3.4bn will be used for ultra-broadband services and new data centres. Specifically, €1.bn will invested in fixed ultra-broadband using optical fibre; €900m in mobile ultra-broadband; and about €700m in creating new data centres to develop cloud computing and international fibre connections.
These investments are expected to enable TI to roll out fixed and mobile ultra-broadband services more quickly than originally envisaged, extending next-generation networks to more than 50% of the Italian population by 2016 and mobile LTE to 80% of the population.
Fixed-line network to be functionally separated
The TI board also decided to “confirm” a project to functionally separate the fixed-line access network, which would allow all licensed operators to access it. However, the telco said it will not decide whether or not any spinoff operation should go ahead until Italian and European regulatory frameworks have consolidated.
“Concrete manifestations” of interest from investors in subscribing to the share capital of the new company will also be taken into account, TI said, adding talks with the national regulatory authority will continue on this new basis.
TI also said the board has considered minority shareholder Findim Group’s request to convene a shareholders’ meeting to discuss an overhaul of the telco’s board. Findim, which is owned by Italian businessman Marco Fossati and owns 5% of TI, has proposed revoking the mandates of most of the telco’s current directors. If the proposal is approved, a vote will be taken on the make-up of the new board. If it is not approved, two new directors will be appointed to replace the two who recently resigned: former CEO Franco Bernabe and Elio Catania. The board has proposed Angelo Provasoli as a replacement for the latter. The shareholder’s meeting will be held on 20 December.
Mixed views from analysts
Commenting on TI’s Q3 results and the new plan, Bernstein Research analysts said in a note to investors that they believe the telco “has made announcements that will placate politicians, reduce near-term pressure on credit and maintain Telefonica’s interest in the domestic assets”.
In their view, Telefonica, the main investor in TI’s dominant shareholding group Telco, will go ahead with a bid for TIM Brasil in conjunction with Carlos Slim’s Mexico-based America Movil (AMX) before the Portugal Telecom/Oi merger closes. Longer term, in 2015, they expect Telefonica to launch a takeover of TI.
The Bernstein analysts do not expect TI’s plan to bear much fruit in 2014 – in fact, they expect EBITDA to drop dramatically next year as a result of “modest” cost cutting, capex of about €3bn and investments yet to pay off.
Meanwhile, Fitch, which has rated TI BBB-/Negative, said the telco’s convertible bond offering and the potential disposals are unlikely to significantly reduce its net debt. In the agency’s view, TI’s ability to maintain its investment grade rating continues to depend on it slowing its EBITDA decline in 2014.
“The group’s 3Q13 results show that its domestic operations remain under significant pressure. We believe the new 2014-2016 plan also faces considerable execution risk and relies on TI obtaining more pricing flexibility from the Italian telecoms regulator,” the agency said.
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.
