Telecom Italia considers Hutchison’s deal as debt remains high

There is no doubt that Telecom Italia (TI), since the former national monopoly, is trying to survive as operations and earnings are stronly affected from European recession and also Latin America. One of the biggest financial problems the Telco is facing is the debt cut and reduction.

In February 2013, TI reported a strong rise in 2012 cashflow, however it missed its 2012 debt-cutting target because of delays to planned disposals and as a recession in Italy and slower growth in Latin America weighed on earnings. Based on its 2012 financial results, operating free cashflow rose more than 10 percent to 6.47 billion euros but the net debt had only been cut to 28.3 billion euros, short of its year-end target of 27.5 billion euros. Thus the debt reamains really high and the markets TI covers are not booming to the point that could help the operator to overcome its debt issue or at least reduce it in the near future.

At this point is when an Asian parachute came into play called Hutchison Whampoa. Telecom Italia has set up a special committee to “verify within a short time” if it is interested in a partnership with Hutchison Whampoa, and examine if the Hong Kong-based conglomerate could become the “leading shareholder of the company”. These were good news and TI’s stock went up, stock was up 2.8 percent at 0.619 euros, while the blue chip Milan index was up 0.5 percent.

Hutchison is targeting nearly 30 percent share of Telecom Italia in a deal that would radically alter the power base at Italy’s leading phone company. Telecom Italia Chairman Franco Bernabe is expected to win a mandate to deepen negotiations but the shareholders are still skeptical and is hardly questioning if they will give a green light to the deal. In addition, political and regulatory hurdles are also expected to emerge as soon as discussions and negotiations begin.

Is it only Telecom Italia in hardship? Ofcourse not, among other debt-laden telecoms companies in Europe, Telekom Austria recently issued a hybrid bond while Dutch group KPN set out plans for a 4 billion-euro rights issue.

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