Telecom Italia Said to Review Hybrid Bond Timing After Election

Telecom Italia SpA, Italy’s biggest phone company, will review the timing of a planned hybrid bond sale after this weekend’s parliamentary elections, said three people familiar with the matter.

The company began investor meetings on Feb. 12 for a potential sale of hybrid securities subject to market conditions, according to a person with knowledge of the matter. It said it plans to issue as much as 3 billion euros ($4 billion) of the debt within two years to bolster finances.

Telecom Italia is struggling to cut net debt of 28.3 billion euros, according to Moody’s Investors Service. By selling hybrid bonds, it could bolster capital ratios without diluting shareholders. Italians go to the polls on Feb. 24-25 as former premier Silvio Berlusconi narrows the lead of union-backed Democratic Party candidate Pier Luigi Bersani, raising concerns of a hung parliament that would set back reforms.

“I’m surprised they didn’t follow through,” said Matthew Barnes, who manages $169 million of corporate debt at ACPI Investments Ltd. in London. “They must be feeling investors are cautious prior to the Italian elections and that for them to print a deal now is locking in a punitive rate.”

A Telecom Italia spokesman who didn’t want to be identified said the company wasn’t delaying the sale and that the issuance program lasts 24 months.

Moody’s provisionally rated the company’s hybrid securities Ba2, two steps below investment grade. Standard & Poor’s and Fitch Ratings both assigned a provisional BB+ grade, the highest junk ranking.

Hybrid securities combine elements of debt and equity. Like stocks, the debt is subordinated, absorbing losses before senior notes are impaired. Hybrids support an issuer’s credit grade because ratings analysts count 50 percent of the notes as equity, reducing their assessment of the company’s leverage, a measure of indebtedness.

Companies such as France’s Electricite de France SA and Veolia Environnement SA have sold hybrid debt this year. Iberdrola SA, Spain’s largest electricity utility, is also planning to issue hybrid notes, Moody’s said Feb. 15.

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