MILAN Feb 11 Moody's has cut its rating on
Italy's Telecom Italia by one notch to Baa3, citing
weaker cash flow and a failure to meet a year-end debt target as
its core domestic market falters.
In a note on Monday, Moody's said increased financial risk
might not be fully offset by a proposed cut in dividend and
plans to issue up to 3 billion euros ($4.01 billion) of hybrid
"The downgrade of Telecom Italia's ratings reflects the
increased risks to its business from the challenging operating
environment in its key domestic market," Moody's analyst Carlos
Last Friday, Telecom Italia launched a plan to raise up to 3
billion euros in costly hybrid debt and halved its dividend to
help fund infrastructure spending.
It said net debt in 2012 had been cut to 28.3 billion euros,
short of its year-end target of 27.5 billion euros, as delays to
planned disposals, a recession in Italy and slower Latin America
growth took their toll.
The company also changed its net debt target for the current
year to below 27 billion euros from 25 billion euros.
"This combined with the company's public guidance to
single-digit decline in reported EBITDA for 2013, represents a
substantial deviation to Moody's previously expected gradual
improvement trend," the rating agency said.
"Moody's remains concerned that Telecom Italia is facing
stronger headwinds in its efforts to improve its financial
ratios," it said.
Like other phone companies in Europe, Telecom Italia is
struggling to fund improvements in its fixed and mobile networks
while having to cut its mountain of debt.
The rating has a negative outlook, Moody's said.
($1 = 0.7474 euros)
(Reporting By Stephen Jewkes; Editing by Michael Roddy)