Market Overview

Informed Investors In European Rat-Race For A Piece Of Telecom Italia

Informed Investors In European Rat-Race For A Piece Of Telecom Italia

Telecom Italia (NYSE: TI), a “hybrid” semi-state and semi-private company in nature, influenced strongly by the decisions on the high level government offices and positions taken by investment funds, is considering spinning off its hard assets by forming a separate company which will manage the operator's communication infrastructure.

According to Bloomberg, about 12,000 transmission points and cell towers grossing roughly to €500 million (almost $700 million) will pass to the new company if the decision is implemented.

Bloomberg quoted an unidentified source, which confirmed the news stressing though that the ongoing “discussions are confidential.”
Telecom Italia has emerged by the integration of a group of historic state-run organizations into a unified state company. Later, a consolidation took place of a number of enterprises active in communications and digital technology.

However, after its privatization in late 90's, Telecom Italia struggles during the recent years to deal with its stiff financial problems, naming since 2011 the financier executive Franco Bernabé as CEO of the company.

Nevertheless, in 2013, Telecom Italia reached the threshold of collapse, unable to find investment capital, while rated by the market as “junk.”

At the brink of disaster, the operator managed to stay alive by the help of the banks issuing a fixed rate bond for an amount of €1 billion and duration of seven years. The title was intended for institutional investors. The yield on the issue has been fixed at 5,054 percent, equal to the mid-swap rate of the same length, plus 330 basis points. The yield is less than the average cost of debt of the group, which at the end of June stood at 5.4 percent.

Considering the company's risks, the costly refinancing was hailed as a positive outcome in Italy, where some talked about dissolution, providing valuable time to address emergency needs and revamp the company.

However, analyst Robin Bienenstock at Sanford C. Bernstein, London, told Bloomberg that the move is “too little too late” after the Italian company deferred “many different options to reduce debt.”

In the meantime, in the European country, the talks about the future of the company culminate under speculation scenarios and conspiracy theories as, surprisingly, a foreign part of Telecom Italia, its affiliate in Brazil, has established sound presence in the Latin America country showing strong profits and market share.

Meanwhile, the Italian Il Messaggero wrote on Thursday, a paper that local shareholders of the company - Mediobanca, Intesa Sanpaolo and Generali - would consider an alternative plan to solve the Telco and address “the problems of governance and financial aspects of Telecom Italia.”

Allegedly, they weigh selling the assets of the mobile telephony division - Tim and Tim Brazil - to Spain's Telefonica (NYSE: TEF) obtaining €25 billion, thus reducing its debt while focusing on fixed telephony. For this reason, Telefonica Chairman Cesar Alierta urgently landed on Wednesday at Malpensa Milan Airport to engage in unofficial discussion over this possibility.

However, if the versed analyst and smart investor look at the broad picture, they would recall that days earlier the Spanish cabinet of ministers has inked its decision for a new General Telecommunications Law.

Spain seeks to claim about €25 billion of much-needed cash for its struggling economy out of €200 billion European budget available to member states. The European Commission has decided some years ago to invest on ultra-fast broadband connections to be available to all households by the year 2020.

The new Spanish regulation foresees near-compulsory sharing of existing communication infrastructure and suspension of all barriers on licensing.

On the other hand, the European Central Bank could be more willing easing its monetary policy by releasing indirectly funds to investments in basic services rather than stimulating consumption, a possibility that may shed more light to the silent ongoing race under the dust for a piece of Telecom Italia.

Posted-In: Cesar Alierta Franco BernabeNews Global Tech Best of Benzinga


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