Telecom Italia announced on Thursday a series of moves aimed at raising enough funds to significantly lower its debilitating debt — about equal to the telco's entire revenue last year — and avoid a credit rating downgrade, while planning to upgrade its mobile and fixed networks.
Italy's incumbent telecoms operator said it would raise about €4bn with the measures, including asset sales and a convertible bond sale, which form part of the company’s industrial plan for 2014-16.
Telecom Italia said it has also received an offer for its 23 percent stake in Telecom Argentina, which has a market value of about $1.4bn, and that it would sell as much as €1.3bn in convertible bonds.
Telecom Italia is to sell the Telecom Argentina stake to investment company Fintech, Bloomberg reported without naming its source. Telecom Italia's plan also calls for the sale of its mobile towers in Italy and Brazil, as well as the digital multiplexes of its media unit.
"We are firmly convinced that this is the best strategic and industrial choice to pursue a path of growth and development," Marco Patuano, chief executive of Telecom Italia, said in a statement. He is scheduled to hold a press conference in Milan on Friday to discuss the industrial plan.
The announced asset sales come just a month into Patuano's tenure as CEO, when he took over from predecessor Franco Bernabe who had clashed with Telefonica, Telecom Italia's largest shareholder.
Bernabe's resignation was the second time he has left in tumultuous circumstances: he was also CEO in 1999 when he lost his job after failing to fend off an unsolicited takeover bid by Olivetti, which was a fraction of the size of Telecom Italia and managed to pull off Europe's largest hostile takeover.
Telecom Italia is still struggling with the legacy of that leveraged buyout with the company having absorbed most of the debt Olivetti issued to finance the deal.
The new industrial plan comes on the heels of Telefonica boosting its stake in the holding company that owns 22 percent of Telecom Italia and has de facto control of the company. Telefonica has already approved the new industrial plan.
Last month, Moody's cut Telecom Italia's credit rating to junk. Standard & Poor's, which has a rating one notch above junk, is expected to decide later this month if it will follow suit. With large amounts of debt coming due in the next 12 months, any downgrades would likely weigh on Telecom Italia’s finances by raising borrowing costs.
The convertible bond sale allows Telecom Italia to avoid issuing new shares through a capital increase, which had been rumoured.
Telecom Italia's Brazilian mobile unit, Tim Participacoes, is a "core asset" and is therefore not for sale, Patuano said on a conference call with analysts on Thursday, although he would not rule out a sale entirely if the right offer came. Telecom Italia's two-thirds stake of the Brazilian company has a market value of about $8bn.
Telecom Italia also said it would invest a total of €9bn domestically over the next three years in superfast fibre broadband and mobile 4G infrastructure as well as new datacentres to support growth cloud computing.
Telecom Italia also said on Thursday net income dropped 27 percent in the third quarter to €505 million while revenue dipped 8.8 percent to €6.6 billion. The domestic business dragged down the group’s results in part due to a forced reduction in the lucrative cell phone termination fees. Revenue and profit increased at both the Argentine and Brazilian units.
Net debt fell €584m in the quarter to €28.2bn and Telecom Italia said it expects it to drop below €27bn by the end of the year. The forecast also calls for full-year revenue to be in line with 2012 and for a mid-single digit percent fall in earnings before interest, taxes, depreciation and amortisation.