Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

S&P downgrades Telecom Italia on weakening earnings

Published 19/11/2021, 19:08
Updated 19/11/2021, 19:10
© Reuters. FILE PHOTO: Il logo Telecom Italia (TIM) a Milano. REUTERS/Stefano Rellandini

© Reuters. FILE PHOTO: Il logo Telecom Italia (TIM) a Milano. REUTERS/Stefano Rellandini

MILAN (Reuters) - S&P said on Friday it had cut Telecom Italia (MI:TLIT)'s debt because shrinking revenue and profits were driving higher a key measure of the Italian phone group's debt burden as calculated by the credit rating agency.

Weighed down by an adjusted gross debt of 29 billion euros ($33 billion), TIM is wrestling with ferocious competition on its home market at a time when it faces heavy investments to support Italy's broadband connectivity push.

The group's worsening financial performance has prompted top investor Vivendi (PA:VIV) to challenge CEO Luigi Gubitosi.

S&P said in a note it had previously expected an improvement in TIM's debt profile in 2020.

"We now expect lower revenue and earnings will cause our adjusted leverage metric to rise to 4.3 times in 2021, and remain above our 4.0 time threshold for the 'BB+' rating until 2023," it said in a statement.

As a consequence, S&P cut its long-term rating on TIM's debt to 'BB' from 'BB+' with a stable outlook.

Also Moody's Investors Service has a negative outlook on its Ba2 rating on TIM's debt.

All the three main agencies rate it below the investment grade level.

"The decline is due to weaker year-on-year domestic service revenue, a slower recovery of roaming and handset sales, and adverse currency movements that are still affecting contributions from the Brazil business in 2021," S&P said.

In an effort to counter the revenue decline, Gubitosi has been looking at options to squeeze cash out of TIM's assets including its prized fixed-line grid.

© Reuters. FILE PHOTO: Il logo Telecom Italia (TIM) a Milano. REUTERS/Stefano Rellandini

S&P said it had not taken into account in its analysis a project currently on hold to combine TIM's network with that of fibre-optic rival Open Fiber, because the terms of any such deal would be key for its impact on TIM's ratings.

"Although a combination of OpenFiber and Telecom Italia's fixed-line assets would mitigate long-term competition risk for the wholesale business, we believe loss of control over the joint assets would likely erode TIM's business profile."($1 = 0.8853 euros)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.