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Telecom Italia Plans to Raise $5.4 Billion to Reduce Debt

The Telecom Italia logo is seen on a public payphone, operated by Telecom Italia SpA, against the backdrop of the Italian housing in Brittoli, Italy. Argentina is one of Telecom Italia’s three core markets, along with Italy and Brazil, and accounted for about 13 percent of its 2012 revenue. Photographer: Marc Hill/Bloomberg
The Telecom Italia logo is seen on a public payphone, operated by Telecom Italia SpA, against the backdrop of the Italian housing in Brittoli, Italy. Argentina is one of Telecom Italia’s three core markets, along with Italy and Brazil, and accounted for about 13 percent of its 2012 revenue. Photographer: Marc Hill/Bloomberg

Nov. 8 (Bloomberg) -- Telecom Italia SpA unveiled plans to sell its Argentine business, assets including wireless towers in Italy and Brazil, and a mandatory convertible bond to raise a total of about 4 billion euros ($5.4 billion) to help pare debt.

The carrier received a binding offer for its 22.7 percent holding in Telecom Argentina SA and its board voted yesterday in favor of the disposal, Telecom Italia Chief Executive Officer Marco Patuano said on a conference call. Fintech, the investment firm founded and led by Mexican billionaire David Martinez, is the bidder, an Argentine official said today.

Patuano, taking over from Franco Bernabe, who resigned last month after clashing with top shareholder Telefonica SA, is attempting to turn around Italy’s largest phone company. The Milan-based carrier’s debt was cut to junk last month by Moody’s Investors Service. Standard & Poor’s, which has said it’s likely to follow suit, will complete its review this month.

“These measures show that Telecom Italia is committed to a stronger financial profile,” Patuano said on the call.

Telecom Italia said today it completed a sale of 1.3 billion euros in mandatory convertible bonds due November 2016. The securities will pay an annual coupon of 6.125 percent and will be exchanged into common and savings shares.

Third-quarter profit fell about 27 percent to 505 million euros, missing the 524.6 million-euro average estimate among analysts compiled by Bloomberg.

Net Debt

Adjusted net debt totaled 28.2 billion euros at the end of September. That’s more than double the company’s market value. Telecom Italia plans to trim its debt to less than 27 billion euros by the end of 2013 and cut the ratio of net debt to earnings before interest, taxes, depreciation and amortization to 2.1 times by 2016, compared with 2.9 times this year.

Telecom Italia fell as much as 7.7 percent and traded 5.7 percent lower at 67.9 cents at 3:54 p.m. in Milan, giving the carrier a market value of 12.4 billion euros.

The yield premium investors demand to hold Telecom Italia’s 1 billion euros of 4.875 percent bonds maturing in September 2020 compared with benchmark government bonds jumped 17.5 basis points to 386.6 basis points, according to Bloomberg generic prices. Spreads on its 750 million euros of hybrid, 7.75 percent bonds due in March 2073 increased 10 basis points to 665 basis points.

Hybrid bonds are subordinated debt securities that have elements of both debt and equity. Telecom Italia can call its hybrid in February 2018 and investors typically use the first call date to price these securities.

Argentine Stake

Patuano said today in a press conference in Milan that the company has received a $1 billion offer for its Argentine assets, declining to comment on the bidder. Fintech’s Martinez told Argentine authorities he’s willing to sell some assets if his bid to purchase the stake in Telecom Argentina is approved, Martin Sabbatella, head of the country’s media regulator, said in an interview today on Radio 10.

A Fintech spokeswoman in New York declined to comment. Martinez didn’t respond to an e-mail seeking comment.

While Telecom Italia declined to give financial details for the Argentine asset, the stake has a market value of about $1.4 billion. The board authorized talks to conclude the deal and Telecom Italia expects to complete the transaction in mid-2014.

Telecom Italia said it expects to reap more than 2 billion euros from the sale of mobile-phone towers and the TI Media Broadcasting unit.

Brazil Business

Argentina is one of Telecom Italia’s three core markets, along with Italy and Brazil, and accounted for about 13 percent of 2012 revenue. The stake is through a holding company called Sofora. Telecom Italia also has a presence in Paraguay through its indirect stake in Buenos Aires-based Telecom Argentina.

Telefonica, which in September increased its holding in Telecom Italia, favors selling the Italian company’s Brazilian division, Tim Participacoes SA, people familiar with the matter have said. Tim has a market value of $11.6 billion and Telecom Italia owns a 67 percent stake.

“A sale of the Argentine asset is a small part of a bigger recovery picture that Telecom Italia needs to complete,” said Carlo Alberto Carnevale Maffe, a professor of business strategy at Milan’s Bocconi University.

Telecom Italia’s Brazilian assets are strategic for the company, Patuano told reporters today. If Telefonica eventually wants to boost its stake in Telco SpA, the holding company that controls 22.4 percent of the Italian carrier, it must get regulatory approval from the “individual countries in which it operates,” Patuano said. That is a requirement in the Telco shareholders’ agreement, he said.

Telefonica said today it isn’t holding any talks with Brazilian authorities over consolidation in the country. It bought 103 million euros of the Telecom Italia convertible bonds yesterday to mitigate a dilution of its indirect stake.

Former Priest

Fintech has investments in Argentina’s sovereign debt as well as in many restructured companies including a stake in the country’s largest cable company, Cablevision SA. A former priest, Martinez lives half of the year in London and the other half in Manhattan.

He built his fortune by buying and helping to restructure the debt of troubled countries and companies, including Telecom Argentina, according to public filings.

Martinez has also invested beyond Argentina and Latin America. In September, Fintech bought almost 5 percent of Spanish lender Banco de Sabadell SA during a share sale.

To contact the reporters on this story: Daniele Lepido in Milan at dlepido1@bloomberg.net; Manuel Baigorri in Madrid at mbaigorri@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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