MOODY'S CONTINUES REVIEW FOR POSSIBLE UPGRADE OF TELECOM ITALIA S.p.A. AND RETAINS NEGATIVE OUTLOOK FOR OLIVETTI S.p.A.
Moody's Investors Service said today that it was maintaining its review for possible upgrade of the Baa1 senior unsecured long-term debt ratings of Telecom Italia S.p.A. (TI). Moody's is also retaining its negative outlook on the Baa2 ratings of Olivetti S.p.A. (Olivetti), the holding company that owns about 54% of the shares of TI, pending the assessment of the impact of the revised industrial strategy resulting from the change in ownership and control of Olivetti, as well as the potential debt reduction in the group. An upgrade in the ratings of TI could possibly trigger a change in outlook for Olivetti to stable.
Moody's will continue its review process of TI's ratings in light of the recently announced industrial strategy for TI and Olivetti, as presented last week by Pirelli S.p.A., the new controlling entity. The review will now focus on the extent to which the new management's strategy will encompass a significant improvement in the financial and business risk of TI/Olivetti group in the medium term.
Moody's will therefore extend the ongoing review process even though the offer to convert TI saving shares into TI ordinary shares - the reason for the original review process announced in February this year - and the simultaneous ordinary share buyback will most likely not be executed given the fact that TI shares are trading well below the strike price of EUR12.5.
The rating review will consider the revised industrial strategy and how it might further enhance TI group's already leading positions in wireline and wireless telecommunications in Italy, the strong operating cash-flow-generating capacity of its strong franchise, the quality of its networks and its strong competitive positions.
Moody's review will also focus on the financial strategy going forward, including the plan to sell assets and reduce TI's debt from its current EUR24.4 billion to about EUR20 billion within the next two years. This will be analysed in the context of the recent increase in debt at TI together with the financial constraints resulting from the high indebtedness of its parent company, Olivetti, which amounts to approximately EUR17.5 billion.
Pirelli has announced its intention to reduce the group's total debt by approximately EUR6 billion within a two-year timeframe. Moody's will assess the degree of management's commitment to improve debt protections ratios resulting from the announced intention to reduce debt in the medium term as well as the realistic timeframe and valuations.
A key element in Moody's ratings review will be to take into consideration Olivetti's debt as part of the global group, Olivetti's full reliance on TI and Telecom Italia Mobile's (TIM) ability to upstream cash to the parent company to service the debt. This places a significant constraint on TI group's financial flexibility.
In addition, Moody's will scrutinise the new management's international strategy - not only in terms of whether possible investments are likely, but also the probability of disposing of non-core international investments to raise cash and reduce debt.
Olivetti S.p.A is headquartered in Ivrea, Italy. It is the legal entity resulting from the recent merger between Olivetti S.p.A. and Tecnost S.p.A., the holding company that owns a voting interest of approximately 54% in Telecom Italia and an economic interest of around 40%.
Telecom Italia S.p.A. is headquartered in Rome, Italy. It services 26 million access lines and is the dominant provider of public fixed-line voice telephony in Italy. In addition, through its approximately 52%-owned subsidiary, Telecom Italia Mobile (TIM), TI operates Italy's largest mobile telecoms network.
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