UPDATE 1-Italy may fine BlackRock on Telecom Italia stake -report

Sun Dec 15, 2013 9:55am EST

* BlackRock raised its stake in Telecom Italia in November

* Consob says should have been notified of investment

* BlackRock may have increased stake through convertible bonds

* Telecom Italia to hold key EGM on Dec. 20

By Francesca Landini and Chris Vellacott

MILAN, Dec 15 (Reuters) - Italian markets watchdog Consob may fine the world's biggest money manager BlackRock Inc for not informing the regulator soon enough that it had increased its stake in Telecom Italia, Consob's chairman told an Italian daily.

At the end of November BlackRock lifted its combined holding in the telecoms operator to 10.1 percent from the 5.1 percent it held in October, according to documents from the U.S. Securities and Exchange Commission (SEC).

Crossing the 10 percent threshold obliges the company to notify the regulators. BlackRock informed the SEC at the beginning of December, but it did not tell Consob within a five-day deadline as required.

A source familiar with the matter, however, said BlackRock was still in compliance with Italian law, as the stake had only exceeded the 10 percent threshold if convertible bonds were included, and such bonds do not count as equity holdings outside the United States.

The source said the U.S. investor would announce this on Monday.

A large stake in Telecom Italia could give the U.S. investor a potentially pivotal role in a Dec. 20 shareholder vote on whether to oust the Italian company's board.

"Our immediate reaction is the sanction procedure; we can impose a fine of a maximum 500,000 euros ($700,000)," Consob's Giuseppe Vegas told daily Il Sole 24 Ore on Sunday.

Consob could also temporarily suspend BlackRock's voting rights on the stake not declared, Vegas said.

The Italian regulator has asked the U.S. group to make a stock exchange statement on what its stake in the Italian company is and whether it intends to be present at the next shareholders meeting on Friday, Vegas was quoted as saying by the newspaper.

BlackRock is required to answer before trading starts on Monday.

An official for BlackRock declined to comment.

According to Vegas, BlackRock continued to buy shares in December. It is unclear by how much the U.S. investor had increased its stake, he said.

With its recent investments, BlackRock could have become the second-largest shareholder in Telecom Italia after holding company Telco, which controls the Italian phone company with a stake of 22.4 percent, and ahead of businessman Marco Fossati, who owns 5 percent.

Telecom Italia was also required to make a statement to the exchange on when it was informed by BlackRock about its investment before the market opens on Monday, Vegas said.

Consob has already opened a probe into Telecom's sale of a convertible bond worth 1.3 billion euros at the beginning of November to see whether the operation breached so-called related party procedures.

A large part of the bond was sold to Spain's Telefonica , which with Italy's Generali, Intesa Sanpaolo and Mediobanca owns Telco. BlackRock and Och Ziff Capital Management were also buyers of the bond.