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Telecom Italia Is Said to Mull $2.8 Billion Capital Increase

Telecom Italia Logo
The Telecom Italia logo is seen on a public payphone operated by Telecom Italia SpA, as the glass side panel reflects the local Italian housing in Civitella Casanova, Italy. Photographer: Marc Hill/Bloomberg

Telecom Italia SpA, the phone company that lost its chief executive officer as well as its investment-grade rating this month, is considering a capital increase of as much as 2 billion euros ($2.8 billion), according to three people familiar with the matter.

Italy’s biggest carrier is evaluating a proposal to raise 1.5 billion euros to 2 billion euros from shareholders including Spain’s Telefonica SA, said the people, asking not to be identified because the deliberations are private. A final decision hasn’t been made, and the option could be presented to the board at a scheduled meeting Nov. 7, the people said.

Telecom Italia fell the most in eight months in Milan trading. Other proposals that could be reviewed by directors include the cancellation of a dividend and a sale of assets in Brazil and Argentina, one of the people said.

Led by Marco Patuano after executive Chairman Franco Bernabe resigned this month following a clash of strategic directions with shareholders, Telecom Italia is seeking to avert a downgrade to junk status by a second rating company. Moody’s Investors Service already stripped the Milan-based carrier of its investment grade, and Standard & Poor’s plans to complete its own review next month. Telecom Italia has almost $40 billion in net debt, more than double its market capitalization.

No Comment

In a stock-exchange statement, Telecom Italia said it plans to present “an industrial plan” to its board on Nov. 7, while it couldn’t comment on “alleged capital increase transactions, dismissals of assets, changes in the dividend policy.”

The stock closed 6.4 percent lower at 67.2 cents in Milan. It fell as much as 9 percent -- the steepest intraday decline in 4 1/2 years -- after Bloomberg’s report and was halted briefly because of the extent of the move.

Robin Bienenstock, an analyst with Sanford C. Bernstein in London, wrote in a note that a potential lengthy process for a sale of the Brazilian division Tim Participacoes SA and possible changes to Italy’s takeover rules would strengthen the case for a capital increase.

“This is a small amount of money to restart Telecom Italia,” said Andrea Giuricin, a professor who specializes in media and telecommunications at Milan Bicocca University. “If the company puts forward other measures such as the sale of some Latin American assets, coupled with a good plan of cost cuts, a turnaround may begin.”

Telco Buyout

Still, Telefonica and other investors in the Italian carrier may be unwilling to inject more cash into Telecom Italia, said Roger Appleyard, head of global credit research at RBC Capital Markets in London.

Spain’s former phone monopoly last month agreed to gradually buy out co-investors in Telco SpA, the holding company that owns 22.4 percent of Telecom Italia and controls the carrier’s board.

Telecom Italia also plans to propose a new cost-reduction program, one of the people said. The company intends to scrap a plan to spin off its telephone network, people familiar with the matter said earlier this week.

Issuers including lender Barclays Plc and tour operator Thomas Cook Group Plc have raised about $69 billion in stock sales in Europe this year, compared with $48 billion in the same period in 2012, according to data compiled by Bloomberg.

Royal KPN NV, the Dutch carrier partly owned by billionaire Carlos Slim’s America Movil SAB, raised about 2.9 billion euros in share sale in May after scrapping its dividend plans.

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