Telecom Italia dives as market takes fright over debt in new plan

By Elvira Pollina

MILAN (Reuters) - Telecom Italia (TIM) shares plunged 24% on Thursday on concerns about debt levels, cashflow and dividend payments after the former phone monopoly issued a three-year outlook under a new structure stemming from its planned network sale.

Milan-listed TIM shares hit their lowest levels since December 2022, with the biggest daily fall on record and a trading volumes 13 times above the last 30-day daily average.

The rout was a blow for TIM Chief Executive Pietro Labriola who is seeking a new term at the helm at shareholder meeting next month and presented his vision for the new TIM at an investor day on Thursday.

Asked during a press briefing about the market response, Labriola said the company will assess the situation, flagging what he called "anomalous" volumes in trading, without elaborating further.

"We cannot hide (from the fact) the market is reacting in a particular way," Labriola earlier told analysts, seeking to reassure over the company's ability to meet the outlook, which includes an 8% annual rise in core profit on a compound basis.

Debt has long been seen as one of the factors holding back TIM, along with tough competition in its home market.

Analysts pointed out that the forecast debt level of the venture emerging from the disposal of TIM's domestic fixed line network, which TIM expects to complete in the middle of this year, was above market expectations.

"The leverage target of 1.6-1.7 times [the company's core earnings] implies some 900 million euros debt increase from the proforma level at end 2023 of 6.15 billion euros," Intesa Sanpaolo analyst Andrea de Vita wrote in a research note.

NETWORK DEAL

Worth up to 22 billion euros ($24 billion) and backed by the Italian government, the sale of TIM's network to KKR is the central plank of Labriola's efforts slash its debt pile by 14 billion euros and shift most of its workforce on to the network.

Leading TIM shareholder Vivendi has questioned the sustainability of the company after the grid sale and the French media group has launched a legal challenge over the deal.

The higher than expected debt level might be connected to cash outflows linked to the network before the closing and the Brazilian business's dividend policy, as well as to financial charges and restructuring costs, according to Equita's Domenico Ghilotti.

Chief Financial Officer Adrian Calaza underscored the impact of managing the company as being integrated with the network business for at least half of this year, which would be cashflow negative.

"The cashflow generation will start from 2025, including for the domestic business," he said.

Analysts also noted the company had not included any dividend distribution plans in the outlook statement, an issue which Calaza said was it was too early to discuss.

(Reporting by Elvira Pollina, additional reporting by Giancarlo Navach and Stefano Bernabei; Editing by Keith Weir)