Telecom Italia is the incumbent telecoms operator in Italy, with 8mn fixed lines and 30mn mobile lines giving it a 40% and 30% share of the fixed and mobile phone markets, respectively. Following the acquisition of Oi’s mobile assets, it is now the third largest mobile operator in Brazil with 61mn lines and a 24% market share.
With the company’s effort to restructure its emerging market business, global advisors are upgrading the credit outlook to stable. While the company’s debt pile is huge, the management addresses the issue with some success, but it is arguably business profile negative. There is execution risk, especially given opposition from core shareholder Vivendi, which is pushing for a shareholder vote. Telecom Italia posted top-line growth for the second quarter in a row in 3Q, with the group able to push through price increases as demonstrated by the virtually flat churn rate.
Telecom Italia’s bond prices reflect already now a potential rating upgrade. Nonetheless, we believe spreads will continue to be supported by further news on deleveraging and the potential debt exchange offer, likely in 2Q24. TIM credit is opportune for investors seeking above average bond investment risk.