Moody’s Investors Service has downgraded Telecom Italia’s debt by a notch, to Ba1, pushing it into junk territory for the first time. The credit ratings agency blamed the company’s failure to strengthen its balance sheet and the recent resignation of Franco Bernabe, Telecom Italia’s CEO and chairman.
Carlos Winzer, a Moody’s SVP and lead analyst for Telecom Italia, said Bernabe’s departure “increased uncertainty regarding the company’s ability to strengthen its balance sheet sufficiently to mitigate the declining trend in its domestic revenues and EBITDA”.
Because of the expected further deterioration in the company’s operating performance, as well as the low visibility on when management might be able to reverse the declining trend, Moody’s argues that Telecom Italia will struggle to achieve its reported net financial position target of less than €27 billion in the red by year end.
Bloomberg reports Telecom Italia has debt of $39 billion (€28.8 billion), more than double its market value.
In a phone call with Bloomberg, Andrea Giuricin, a media and telecommunications analyst at Milan Bicocca University, said “junk level is a very bad news for Telecom Italia and the company doesn’t have a clear strategy for the future”.
Giuricin added that the Italian government may enforce its so-called “golden power” now that Telecom Italia has been stripped of its investment-grade rating.
The golden power enables the State to have a say in decisions made by companies operating in what are deemed strategic industries, such as telecommunications and airlines.
Telefonica, which recently boosted its stake in Telecom Italia, has reportedly been in favour of selling Telecom Italia’s Brazilian unit (TIM) in order to raise cash.
Bernabe, however, was believed to be against a sale of Latin American assets, preferring a capital increase and a spin-off of Telecom Italia’s fixed-line network.
In response to Moody’s downgrading, Telecom Italia released a statement saying the Group was solid both industrially and financially, pointing to cash-flow generation of €32 billion in the last five years.
Over the same period of time, says Telecom Italia, the group has reduced its net financial position by €7.6 billion, while investing a total of €25 billion in the countries it operates in.