Telecom Italia’s Plan to Win Back Investor Confidence

Updated on
  • Genish says he’s gotten some ‘good vibes’ from rating agencies
  • Telecom Italia is assessing options for a network spinoff

A television communications tower stands inside the headquarters of Telecom Italia SpA in Rozzano, Italy.

Photographer: Alessia Pierdomenico/Bloomberg

Telecom Italia SpA Chief Executive Officer Amos Genish aims to restore the credit rating of Italy’s former phone monopoly to investment grade next year, potentially opening up a cheaper source of financing and a wider pool of investors.

Genish plans to demonstrate progress in 2018 on Telecom Italia’s goal of lowering debt to 2.7 times its earnings before interest, taxes, depreciation and amortization, from 3.1 times currently, he said in an interview at Bloomberg’s London office. That should reassure credit-rating companies, he said.

Amos Genish

Photographer: Jason Alden/Bloomberg

“By the end of 2018, rating agencies should be looking positively to bring us to an investment-grade rating,” Genish said. “We are talking to them and we’ve gotten some good vibes.”

Genish, who became CEO in September, is trying to rebuild investor confidence after a period of management turmoil and tense relations with the Italian government, as the carrier’s biggest shareholder Vivendi SA sought to assert its influence. He plans to address longstanding concerns over Telecom Italia’s debt by cutting costs and improving operational performance to boost free cash flow, as he revamps the carrier’s domestic business.

S&P Global Ratings joined Moody’s Investors Service in stripping Telecom Italia of its investment-grade status in 2013 over concerns it couldn’t bring down its debt fast enough to make up for declining earnings. At the end of September, the carrier had 26.2 billion euros ($31 billion) of net adjusted debt, according to the company.

Only Fitch, with a long-term issuer rating on Telecom Italia of BBB-, considers the company investment grade. Moody’s rates the company Ba1, while S&P gives it a BB+ rating -- both the highest among junk rankings. S&P gave the company a positive outlook in July.

Telecom Italia’s stock rose 0.9 percent to 0.72 euros at 10:22 a.m. in Milan on Wednesday. The shares have fallen 25 percent in the last three years while the Italian index rose about 11 percent over the same period.

“Clearly Telecom Italia needs to build value for investors,” Genish said, noting the stock’s lag behind major indexes and valuation multiples that are lower than peers. He was due to discuss the thrust of his strategy for the coming three years on Tuesday with the board.

In addition to discussing its business plan through 2020, the board approved its preliminary budget for 2018, the company said in a statement late Tuesday. The phone carrier will also continue talks with Silvio Berlusconi’s Mediaset SpA for a new multi-year deal on TV programming. Telecom Italia is seeking rights to air sports broadcasts such as the UEFA Champions League 2018 soccer tournament.

Key for 2018 will be expanding Telecom Italia’s media business, including the introduction of more pay-TV offerings to help retain subscribers, Genish said.

“Next year will be defined by the launch of many innovative products based on flexible and convergence bundles,” Genish said.

Among top priorities over the long run is smoothing over past disputes with the Italian government, which is concerned about Telecom Italia’s ownership of the nation’s main fixed telecommunications network, given the carrier is controlled by a foreign investor, Vivendi. Telecom Italia is evaluating options including a potential spinoff of its landline network, an asset valued at about 15 billion euros.

“The first step is to study the matter, what we are talking about when we speak about a spinoff and which is the best path to address government concerns,” Genish said. Telecom Italia wants to control the asset and is trying to understand what regulatory benefits it would gain from a spin-out, he said.

Telecom Italia’s management will continue to study whether network separation is needed to address the government’s input and to unlock value, the company said in a statement.

— With assistance by Benedikt Kammel, and Jackie Simmons

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