Fitch downgrades Telecom Italia to ‘BB-‘

Ratings agency Fitch on Tuesday downgraded Telecom Italia’s credit rating to ‘BB-‘ from ‘BB,’ citing insufficient debt reduction in 2022.

Fitch said its outlook for Italy’s biggest phone group was “negative,” warning that higher inflation and lower consumer purchasing power will affect earnings before interest, taxes, depreciation, and amortization (EBITDA) and revenue.

“We expect Fitch-defined EBITDA to decrease to EUR 5 billion in 2022 from EUR 5.3 billion in 2021,” the ratings agency said.

Fitch’s base-case forecasts assume Telecom Italia’s EBITDA net leverage will increase to about 4.7 times at the end of 2023 from 4.3 times at end-2022 before declining to about 4.6 times by end-2024.

It expects the company’s free cash flow to remain negative for at least three years, adding that financing of its negative free cash flow is increasingly important given financial market volatility and high interest rates.

Ratings agency S&P Global in October downgraded Telecom Italia to “B+” from “BB-,” citing a weak macro environment. Moody’s in July downgraded Telecom Italia by one notch to ‘B1,’ citing expectations its leverage will remain high and free cash flow will stay negative over the next two to three years.

Italy’s new government wants to bring Telecom Italia’s network under state control to speed up the digitalization of the economy, Industry Minister Adolfo Urso said on Monday.