By Manuela Mesco
MILAN--Telecom Italia's (TIT.MI) Chief Executive Franco Bernabe
Wednesday said the company could avoid a potential credit rating
downgrade by selling Latin American assets or by launching a
capital increase.
Telecom Italia, under watch from the main credit rating agencies
because of its huge 29 euro billion ($39.1 billion) debt, has two
options to avoid a downgrade, the CEO said. "The first is to
dispose - through a competitive process -- all the assets in Latin
America. Another, is a capital increase open to current or new
stakeholders," he said. Market conditions are right for a capital
increase, he added.
Mr. Bernabe was speaking at a parliamentary committee hearing a
day after Spanish Telefonica (TEF) said it took control of Telco,
the holding company that owns the largest single stake in Telecom
Italia. At the hearing, Mr. Bernabe repeatedly said that he learned
about changes in the Telco shareholding structure only after they
were made.
The CEO is due to bring proposals on the company's future
strategies at a board meeting scheduled for Oct.3. "The management
job is to propose, the board will deliberate," he said on
Wednesday. Yet he added that if Telco's board members want to block
a proposal, they have the power to do so.
Telecom Italia and Telefonica both have units in Latin America.
With Telefonica taking control of Telco, the antitrust regulator
could require the Spanish company to give up either its or Telecom
Italia's Latin American assets.
"[A credit rating downgrade] will happen, but nobody is really
concerned about it, as the sale of TIM Brazil will resolve the
balance sheet's issues," said Sanford C. Bernstein analyst Robin
Bienenstock on Tuesday.
A downgrade to junk status from Moody's could potentially arrive
later this year, although the credit rating agency said on Tuesday
that it sees no direct credit implications from Telefonica's
increased stake in Telco for either Telefonica's or Telecom
Italia's rating.
Moody's senior vice president Carlos Winzer said the agency is
still in the process of reviewing the Italian company's rating and
will closely look at the board's decisions next week. Yet, these
could still not be enough for completing the rating review, he
added.
Write to Manuela Mesco at manuela.mesco@wsj.com
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