Telecom Italia: Shareholders' Meeting of 20 December 2013 ? information provided pursuant to article 114, paragraph 5, of Leg..
20 Dezember 2013 - 7:36AM
Italian Regulatory (Text)
PRESS RELEASE
Shareholders' Meeting of 20 December 2013 Â information provided
pursuant to article 114, paragraph 5, of Legislative Decree No.
58/1998. Rome, 19 December 2013 With reference to the Ordinary
Shareholders' Meeting of Telecom Italia S.p.A. called for 20
December 2013 (Rozzano  Milan, Viale Toscana 3, 11.00 a.m.), and
in particular item 2 of the agenda for the extraordinary part
(pertaining to "Increase in share capital with disapplication of
preferential subscription rights through the issue of ordinary
shares, to enable the conversion of the convertible bonds issued by
the subsidiary Telecom Italia Finance S.A. amounting to 1.3 billion
euros - related and consequent resolutions"), in a request dated 17
December 2013 (outside the Protocol Office's working hours), but
actually received at the Company's offices this morning, Consob
asked the Company to provide the following information by 6:00
p.m.: · with reference to the decision-making process that led to
the mandatory convertible bonds being identified as the "most
effective instrument" for the purpose of strengthening the
Company's asset structure: clarify whether in the context of this
decision-making process the Company benefited from the input of
independent experts and, if so, specify: (i) the terms of the
instructions given; (ii) any alternative transactions taken into
account and (iii) the conclusions reached by the consultants; state
whether the Board of Directors examined other potential fund
raising solutions (i.e. capital increase, sale of the shareholding
in Brazil, M&A operations with other operators in the sector,
etc.); if the Board of Directors decided not to act in accordance
with the conclusions reached by the experts, describe the reasons
behind this decision; specify the reasons that led the Board of
Directors to determine the requirement to be fulfilled through the
issuance of the mandatory convertible bonds as being "between 1 and
1.5 billion euros", considering the amount of investments
anticipated during the Plan period, as communicated to the market
on 7 November 2013. · with regard to the [...] downgrade by
Standard & Poor's, indicate what actions are planned or being
considered by the Company to recover an investment grade rating,
specifying the state of implementation thereof, their consistency
with the assumptions made in the business plan approved on 7
November 2013 and the quantitative impacts. *** Bearing in mind the
limited time available to draw up the press release, the Company
hereby states the following: As shown in the explanatory report to
the Extraordinary Shareholders' Meeting being held tomorrow, the
decision made by the Board of Directors of Telecom Italia to
proceed with the issuance by the subsidiary
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Telecom Italia Finance S.A. of the Subordinated Mandatory
Convertible Bonds due 2016 convertible into ordinary shares of
Telecom Italia S.p.A. (hereinafter: the Loan) is the outcome of a
long process that involved an examination of the measures to
strengthen the asset structure required to protect the Company's
creditworthiness in the context of the 2013-2015 Business Plan. In
that context, together with the 2013-2015 Plan, on 18 February 2013
the Board of Directors approved  inter alia  a programme of
hybrid bonds capable of obtaining recognition from the rating
agencies of an equity content of up to 50% of its equivalent amount
for a maximum of 3 billion euros (and thus for a maximum potential
equity content of 1.5 billion euros). As is known, as part of that
programme on 20 March 2013 an issue of 750 million euros was
completed (which, however, following the downgrade and change to
the methods used by Moody's Investors Service Limited, for this
rating agency should now be considered short of equity content).
The option to issue the hybrid bonds was accompanied by the
reduction of 50% of the dividend policy with respect to the
previous year (cutting the dividend of the ordinary share from
0.043 to 0.02 euros and the savings share from 0.054 to 0.031
euros) and a renewed effort to impact on the structure of the cash
costs. At the same time the OPAC project was underway, aimed at
evaluating the opportunities of the national access network
separation even from the viewpoint of extracting value from the
asset. Subsequently, on 1 August 2013, in view of the mid-year
results and the business development outlook, in an unfavourable
regulatory context (AGCom's decision on the price of wholesale
services of 11 July 2013), the Board of Directors ascertained a
devaluation of 2,187 million euros of the goodwill attributed to
the Domestic business unit, also revising downward EBITDA guidance
for 2013. Moody's Investors Service Limited reacted to this
information first by subjecting the Company to credit watch (8
August 2013) and then effectively proceeding to downgrade it to the
level of sub-investment grade Ba1, with a negative outlook (8
October 2013). For their part, after the board meeting of 3 October
2013, the other ratings agencies highlighted the risk factors of
the credit rating (Fitch Ratings Limited), and indicated that
downgrading was possible (Standard & Poor's Rating Services
Inc.), if Telecom Italia did not take action to strengthen its
positioning on the markets it operates in, with particular focus on
Italy, and to strengthen its financial structure by further
reducing its net financial position. All this led, within the
Company, to a process of complete revision of the strategic
priorities, which on 7 November 2013 translated into the definition
by the Board of Directors of the new 2014-2016 Industrial Plan, -
focused on the development of the new infrastructures and
innovative services, first of all in Italy, without the
intervention of third party co-investors, and - accompanied by
extraordinary support measures aimed at strengthening the Group's
asset structure. The outlook of the Plan is to bring Telecom Italia
to metrics in line with the status of investment grade within the
Plan timeframe. In this scenario, the contribution of the
extraordinary operations (which exclude the sale of the
shareholding in Brazil) has been estimated at approx. 4 billion
euros, of which the sale of Telecom Argentina and the Bond issue
represent the first half. In brief, the contribution of the equity
operation (as is in perspective the Bond issue) to the sum of the
extraordinary measures is consistent with the requirements and
objectives of the new 2014-2016 Plan, from which it cannot be
separated. In turn, the equivalent amount identified has impacted
the choice of instrument, excluding in particular the use of
measures with preferential subscription right. Referring once again
to the explanatory report to the extraordinary Shareholders'
Meeting, the contribution of risk capital for said amount,
alongside the remaining measures presented in conjunction with the
2014-2016 Industrial Plan, was considered sufficient to:
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- - -
increase the financial flexibility of the Group, and at the same
time reduce the need for and risks of refinancing; allow the
company to face the changed rating situation and passage to
sub-investment grade with the necessary prudence, limiting the
downgrade to a single rating level; guarantee that the options to
further reduce indebtedness can be considered more calmly, also in
relation to the progress of the company. ***
Returning to the issues raised by Consob, it is specified that, as
part of the process briefly described above, which was an overall
industrial and financial planning process, - the Company has not
consulted experts (whether qualified as indipendent or not) for the
comparative evaluation and/or identification of possible
alternative options of an extraordinary nature for the Group; -
with respect to the carrying out of the specific operations (in
primis: the sale of the investment in Telecom Argentina and the
Bond issue), however, the Company has made use of the consultancy
and operating support provided by commercial banks, experts in
economics and law firms, according to requirements and usual
practice; - the Board of Directors has been represented over time
by the management various fund raising options, which have ranged
from the sale of assets to equity or quasi-equity initiatives, also
considering the hypothesis of consolidation with other operators
(possible integration with 3 Italia); - in view of the target of
revenues and investments in the 2014-2016 Industrial Plan, the
Board of Directors has quantified the need for additional resources
from extraordinary operations at 4 billion euros, resulting in a
possible limitation of the equity component to the amount of 1-1.5
billion euros. Lastly, with reference to the rating downgrade of
the Company to level BB+/B by Standard & Poor's, which occurred
on 14 November 2013, specific actions in order to return to an
"investment grade" rating are not currently foreseen nor under
consideration, other than those already provided for in the
2014-2016 Plan which, as stated above, is aimed at bringing Telecom
Italia to metrics in line with the status of investment grade
within the Plan timeframe.
Telecom Italia Ufficio Stampa
+39 06 3688 2610 http://www.telecomitalia.com/media
Telecom Italia Investor Relations
+39 02 8595 4131 http://www.telecomitalia.com/investorrelations
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