Telecom Italia delays bond on Italy poll worries - sources

MILAN Wed Feb 20, 2013 1:16pm EST

MILAN Feb 20 (Reuters) - Telecom Italia will delay the launch of a first tranche of a hybrid bond because of investor worries about the national election on Sunday and Monday, sources close to the operation said.

The debt-laden group met investors last week to sound out their intentions after earlier this month announcing a dividend cut and a plan to raise up to 3 billion euros ($4 billion) hybrid debt over the next 18-24 months.

"Investors - especially from Germany and France - are worried about the outcome of the poll and consequently about the prospects for the country," one source said on Wednesday.

"If there is a negative reaction to election result, investors risk seeing the value of their investment diminish. As a guarantee, they are demanding higher returns, making the operation too costly for the issuer," the source said.

Chief financial officer Piergiorgio Peluso said on Feb. 8, when the hybrid bond plan was unveiled, that a first tranche would be launched soon.

A rating downgrade in the following days did not help, driving yield spreads on Telecom Italia's bonds higher.

On Feb. 12, Moody's cut its rating on Telecom Italia one notch to Baa3, citing weaker cash flow and a failure to meet a year-end debt target as its core domestic market falters.

Banks leading the hybrid bond issue, Barclays and JP Morgan, on Friday were mulling a maturity of 60 years and a call right after five years.

On Wednesday, shares in Telecom Italia ended 2.5 percent lower at 0.606 euro, close to their lowest level since 1997. ($1 = 0.7479 euro) (Reporting by Gabriella Bruschi; Editing by Dan Lalor)