Egyptian Tycoon Shorts Former Italian Telecommunications Monopoly

Egyptian telecoms tycoon Naguib Sawiris increased his short position in Telecom Italia after Spain’s Telefónica agreed to gradually take a controlling stake in Telco, the largest shareholder in the Italian company’s shares. “We don’t see any value in what it will do now,” Sawiris told Ahram Online.

After Telecom Italia (TIT) was last week shorn of its investment grade rating and denied press reports it was seeking to raise €9 billion (US$12 billion) from selling its Brazilian unit, Chief Executive and Chairman Franco Bernabè tendered his resignation. “This is only a reflection of what we think of the Telecom Italia move,” Sawiris said in an interview in Cairo. “Because I believe Telecom Italia was already a partner in this company for 20-years and the company lost around 80 percent of its market capital.”

Spanish rival Telefónica is believed to support offloading TIM Participaçoes (TIMP3), the Brazilian unit the debt-saddled former Italian telecoms monopoly has a 67 percent stake in. Sawiris attempted last year to buy a stake in Telecom Italia through a three-billion Euro capital injection, but without success.

“We believe that even if Brazil was sold that does not help the credit of Telecom Italia,” said Sawiris, whose investment firm Orascom Telecom, Media and Technology SAE (OTMT) Reuters first reported increased its short position in the Italian operator.

According to Sawiris, even if TIM is sold, it has to be at nine times EBITDA  (earnings before interest, tax, depreciation and amortisation) an “astronomical price, and not a price that has ever been achieved.” Telecom Italia is “also coming under pressure because its debt situation is very high.”  The Egyptian business tycoon added: “So with these considerations, I believe it’s very difficult for them to achieve a good price. The stock will go down.”

Moody’s downgraded Telecom Italia’s ratings to junk on Bernabè’s resignation and “increased uncertainty” about the company’s ability to strengthen its balance sheet “sufficiently to mitigate the declining trend in its domestic revenues and EBITDA,” Carlos Winzer, an analyst at the ratings agency covering Telecom Italia, said in a statement.

Expected lower growth rates at TIM Brazil could also challenge Telecom Italia’s ability to meet group financial guidance, Moody’s said.

Sawiris said he isn’t shorting the stock on an expectation of a further credit downgrade and low chances of Telecom Italia sell TIM Brazil to avoid being forced to raise capital. “My bet is that Telecom Italia won’t be able to resolve its credit worthiness problems.”

Sawiris and US telecom giant AT&T (T) contacted core investors who want to sell their shares in Telecom Italia, according to a Reuters report early September citing an unnamed source “‘close to the situation.”

According to a report by Italian daily business newspaper Il Sole 24 Ore before Telefónica agreed to take the controlling stake in Telco cited by trade publication Telecompaper Europe, Bernabè informed Italian banking groups Mediobanca, Intesa Sanpaolo and Generali he might tell Telecom Italia’s 3 October board meeting that Sawiris and China

Telecom were ready to make an investment in Telecom Italia – even through a minority shareholding.