Telecom Italia Renews Contract With Egyptian Billionaire Naguib Sawiris

Telecom Italia SpA (TIT), Italy’s largest phone company, is considering an overhaul to its ownership structure as controlling shareholders are allowed to exercise a right to end a six-year partnership this month, according to two people familiar with the matter.

Telecom Italia has renewed contact with Egyptian billionaire Naguib Sawiris, whose bid to acquire a stake in the Milan-based carrier was rejected last year, said the people, who asked not to be identified discussing confidential deliberations. Telefonica SA (TEF), which owns almost 22.5 percent of Telecom Italia with three financial investors through holding company Telco SpA, is considering whether it would acquire additional shares from the partners, another person said.

“A big international main partner such as Sawiris or also Telefonica could make the company more international, diversifying its business in other markets,” said Andrea Giuricin, a media and telecommunication analyst at Milan Bicocca University.

Chief Executive Officer Franco Bernabe is racing against time to find capital after rating companies put Telecom Italia’s debt under review for a possible downgrade to junk. Telecom Italia’s net debt — at 28.8 billion euros ($38 billion) at the end of June on an adjusted basis, is almost triple its market value. The CEO plans to discuss investment scenarios with directors at a Sept. 19 meeting, the people said.

Avoiding Junk

“In the next three months, Telecom Italia needs a capital increase of at least 3 billion euros to avoid rating companies downgrading its debt to junk,” Giuricin said. The focus is on unwinding the Telco holding and a shorter control chain would be good for the future of Telecom Italia governance, he said.

A Telecom Italia spokesman who asked not to be named citing company policy declined to comment, as did Sawiris . A Telefonica spokesman also declined to comment.

Telecom Italia slipped 1.3 percent to 59.9 cents at 11:47 a.m. in Milan, after rising 9.6 percent yesterday. La Repubblica newspaper reported yesterday Sawiris is a favorite candidate to buy a stake in Telecom Italia via a stock sale.

Credit-default swaps on Telecom Italia rose to an 11-month high of 400 basis points on Aug. 5 from 248 basis points in May and now cost 313 basis points, according to Bloomberg data.

Waiting Time

The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreement and an increase signals deterioration in perceptions of credit quality.

Telco owners can exit the shareholding accord this month or in August 2014. Mediobanca SpA (MB) and Assicurazioni Generali SpA (G), have said they plan to sell their Telecom Italia shares.

Intesa Sanpaolo SpA (ISP) may also decide to exit the agreement and is open to the best solution for Telecom Italia, CEO Enrico Cucchiani told reporters today in Cernobbio, Italy.

“It’s time for Telefonica to declare where it stands, the time for waiting” is over, Marco Fossati, chairman of Findim Group SA said last week in an interview. Findim owns about 5 percent of Telecom Italia.

Sawiris said in an interview in May that he would be interested in re-entering the Italian market after selling Wind Telecomunicazioni SpA two years ago. Last year, he tried unsuccessfully to buy a stake of at least 2 billion euros in Telecom Italia.

Billionaire Carlos Slim’s America Movil SAB is among potential investors in Telecom Italia, according to Sanford C. Bernstein analysts. An America Movil press officer in Mexico City, who asked not to be named citing company policy, said yesterday the company isn’t in talks with Telecom Italia shareholders.

AT&T Inc. (T) is looking at assets in Europe that would offer better returns than at home in the U.S. CEO Randall Stephenson has said he sees a “fascinating” opportunity to invest in wireless Internet on the continent, which has been leapfrogged by the U.S. in mobile technology.

Brad Burns, a spokesman for Dallas-based, AT&T, declined to comment on the company’s potential interest in Telecom Italia.