Argentinian telecoms regulator AFTIC blocked Telecom Italia’s (TI) sale of a majority stake in Telecom Argentina to investment firm Fintech – a blow for the Italian incumbent’s debt repayment strategy.
The regulator blocked the sale of a 68 per cent stake in Sofora Telecomunicaciones, Telecom Argentina’s holding company, to Fintech, a deal worth $960 million.
AFTIC said Fintech had not demonstrated it had the “experience and expertise” to run the fixed and mobile operator.
In addition, said the regulator, it was found that “Fintech Telecom was incorporated in the State of Delaware on October 18, 2013, less than a month before the Telecom Italia Group has accepted the offer to start the operation in question.” A deal was agreed between the two firms towards the end of October.
Another concern from the regulator, regarding Telecom Argentina’s “social composition”, was that it would fall under the control of an investment company.
“For these reasons, the Board considered that Fintech is not in a position to operate and take control of the services and infrastructure of the company Telecom Argentina,” the regulator concluded.
TI’s next move
Telecom Italia, which had net debt of €27 billion at mid-year, issued a statement to reassure investors. It said Fintech planned to appeal the regulator’s decision.
However, the Italian incumbent also laid out a contingency plan. If the sale of a 51 per cent stake in Sofora to Fintech (an initial 17 per cent has already been sold to the investment firm) is not completed by April 2017, TI has two options.
One option is to withdraw from the agreement with Fintech and exercise a six-month call option to purchase (either directly or through another part of the group) the 17 per cent stake.
The second option is to pursue the sale (subject to regulatory approval) of its 51 per cent controlling interest in Sofora to a third-party buyer, with a guarantee from Fintech of total proceeds to Telecom Italia of at least $630.6 million. If the proceeds of such a sale exceeds the minimum guaranteed by Fintech, the difference will be allocated between Telecom Italia and Fintech according to an agreed formula.
If Telecom Italia is unable to complete the sale to a third party within a further period of two and a half years, the agreement with Fintech will be terminated, Fintech will pay Telecom Italia $175 million and Telecom Italia will benefit from a six-month call option to purchase (either directly or through another part of the group company) the 17 per cent minority stake in Sofora previously sold to Fintech.
Telecom Italia previously received certain guarantees of performance under the 2014 agreements with Fintech, which are secured by the pledge of collateral with a value of $600.6 million.