Fitch: CEO Departure Narrows Options for Telecom Italia
LONDON -- October 4, 2013
The resignation of Mr Franco Bernabe as cChairman and CEO of Telecom Italia
(TI) removes the possibility of a large capital increase, which would have
been positive for TI's credit profile, Fitch Ratings says. Bernabe had been
advocating issuing stock to help reduce the group's debt, but his departure is
an indication that shareholders would not accept that plan.
Uncertainty is likely to persist as Mr Marco Patuano, TI's Chief Operating
Officer, takes over as CEO and formulates a plan of action. In addition to
improving the domestic business, we believe that possible alternative options
to strengthen the business and reduce debt could include a sale of TIM Brasil
as well as a network spin-off. Both of these options, which have been
regularly highlighted in the press, would take at least 6-12 months to
complete, and are therefore unlikely to relieve the pressure on TI's rating in
the short term.
TI has limited headroom at is current 'BBB-' rating with Negative Outlook,
mainly due to continued weakness in the domestic business. We may downgrade
the company if our forecasts indicate further high-single digit EBITDA
declines in the domestic business in 2014. If TI is unable to keep leverage as
measured by unadjusted net debt to EBITDA (excluding Telecom Argentina)
sustainably below 3.5x this could also result in a downgrade.
A potential sale of TI's 67% stake in TIM Brasil may reduce TI's leverage, as
measured by Fitch, by around 0.2-0.4x. TI's rating does not benefit from
diversification as TI's domestic business accounts for over 90% of the group's
EBITDA less capex (excluding Telecom Argentina).
We believe that the credit impact on TI of a potential spin-off of its
fixed-line access network depends mainly on the details of the agreement TI
reaches with the Italian telecoms regulatory body, AGCOM. Please see our
comment Fitch: Impact of Possible Telecom Italia Spin-Off Depends on
Regulation" from 3 June 2013 for more details.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article can be accessed at
www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
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Damien Chew, CFA, +44 20 3530 1424
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Michael Dunning, +44 20 3530 1178
Simon Kennedy, +44 20 3530 1387
Peter Fitzpatrick, +44 20 3530 1103, London
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