Fitch: Oi Deal May Aid Telecom Italia Leverage; Cut Competition

Fri Aug 29, 2014 7:03am EDT

(The following statement was released by the rating agency) LONDON, August 29 (Fitch) The likely failure of Telecom Italia's bid for Global Village Telecom in Brazil leaves the door open for Grupo Oi to make an offer for the Italian group's stake in TIM Participacoes, Fitch Ratings says. This would reduce Telecom Italia's leverage, which is stretched for the current rating, and would cut the number of major Brazilian mobile operators from four to three, lessening competition. Telecom Italia earlier this week offered to buy GVT in a cash and shares deal with an enterprise value of around EUR7bn, but at the same time Oi said it had hired an investment bank to examine the possibility of buying Telecom Italia's TIM stake. GVT's owner Vivendi has subsequently opted to enter into exclusive negotiations with Telefonica over an offer with an enterprise value of EUR7.45bn. TIM remains a strategic asset for Telecom Italia. But we estimate that selling it would, depending on the price achieved, cut leverage on a net debt to EBITDA basis by 0.2-0.4x. Leverage excluding the group's stake in Telecom Argentina, which it already plans to sell, was 2.9x at the end of 2013 and is likely to increase further by the end of this year due to falling EBITDA and weak free cash flow. A sale of TIM might therefore ease near-term pressure given the Negative Outlook on Telecom Italia's 'BBB-' rating. Underlying cash flow would nonetheless need to improve before the company was considered to have a stable credit profile. The industry consolidation by the sale of TIM, the second largest mobile operator in Brazil, would lead to reduced competition, which could counter the impact of a slowing economy and higher-than-expected cuts to mobile termination rates. It also, however, increases the risk that regulators will block the deal or impose other restrictions. Oi's market position and competitiveness could improve, but its financial profile may come under pressure depending on the deal structure and the company's financing plan. Contact: Stuart Reid Senior Director Corporates +44 20 3530 1085 Fitch Ratings Limited 30 North Colonnade London E14 5GN Giovanni Reichenbach Associate Director Corporates +44 20 3530 1255 Simon Kennedy Director Fitch Wire +44 20 3530 1387 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at 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.