Fitch: CEO Departure Narrows Options for Telecom Italia

Fri Oct 4, 2013 10:25am EDT

(The following statement was released by the rating agency) LONDON, October 04 (Fitch) The resignation of Mr Franco Bernabe as cChairman and CEO of Telecom Italia (TI) removes the possibility of a large capital increase, which would have been positive for TI's credit profile, Fitch Ratings says. Bernabe had been advocating issuing stock to help reduce the group's debt, but his departure is an indication that shareholders would not accept that plan. Uncertainty is likely to persist as Mr Marco Patuano, TI's Chief Operating Officer, takes over as CEO and formulates a plan of action. In addition to improving the domestic business, we believe that possible alternative options to strengthen the business and reduce debt could include a sale of TIM Brasil as well as a network spin-off. Both of these options, which have been regularly highlighted in the press, would take at least 6-12 months to complete, and are therefore unlikely to relieve the pressure on TI's rating in the short term. TI has limited headroom at is current 'BBB-' rating with Negative Outlook, mainly due to continued weakness in the domestic business. We may downgrade the company if our forecasts indicate further high-single digit EBITDA declines in the domestic business in 2014. If TI is unable to keep leverage as measured by unadjusted net debt to EBITDA (excluding Telecom Argentina) sustainably below 3.5x this could also result in a downgrade. A potential sale of TI's 67% stake in TIM Brasil may reduce TI's leverage, as measured by Fitch, by around 0.2-0.4x. TI's rating does not benefit from diversification as TI's domestic business accounts for over 90% of the group's EBITDA less capex (excluding Telecom Argentina). We believe that the credit impact on TI of a potential spin-off of its fixed-line access network depends mainly on the details of the agreement TI reaches with the Italian telecoms regulatory body, AGCOM. Please see our comment Fitch: Impact of Possible Telecom Italia Spin-Off Depends on Regulation" from 3 June 2013 for more details. Contact: Damien Chew, CFA Senior Director Corporates +44 20 3530 1424 Fitch Ratings Limited 30 North Colonnade London E14 5GN Michael Dunning Managing Director Corporates +44 20 3530 1178 Simon Kennedy Director Fitch Wire +44 20 3530 1387 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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