real-time news and commentary for investors
Tuesday, Aug 6
Telecom Italia faces spectre of credit downgrades after denying stock issue
- Telecom Italia (TI) faces the strong possibility that its debt will be downgraded to junk status by the 3 major credit agencies, after CEO Franco Bernabe unequivocally stated on the Aug. 2 conference call the carrier "will not need a capital increase."
- The market begs to differ with Bernabe. CDS spreads on the Italian phone operator have ballooned and are now at 402 bps, according to Moody's. The swaps imply a B2 rating (5 steps below the current precipice Baa3 rating assigned by all 3 agencies).
- "Telecom Italia is not a good story," says Roger Appleyard of RBC Capital Markets. Shares are down 30% YTD, whereas the Bloomberg Europe Telecommunication Services Index is up 9.4%.
- The company has missed a number of opportunities to lower its €28.8B net debt load. A potential investment by Egyptian billionaire Naguib Sawiris was rejected, merger talks with Li Ka-Shing's Hutchinson Whampoa didn't pan out, and the spin-off of TI's fixed-line network has been suspended.
- TI is stuck between a rock and a hard place, saddled on one side by debt that totals almost 3 times its market cap, and beleaguered on the other by regulatory pressures and anti-trust lawsuits.