Argentina’s telecoms regulator AFTIC has prevented Telecom Italia from selling its majority stake in Telecom Argentina to an investment company.
The ruling is a major setback for TI, as the operator had been planning to reduce its debt by selling a 68% holding in Sofora Telecomunicaciones – the holding company for Telecom Argentina – to Fintech for $960 million.
AFTIC justified its decision with the claim that Fintech lacked the “experience and expertise” to run a mobile operator, adding that “Fintech Telecom was incorporated in the State of Delaware on October 18, 2013, less than a month before the Telecom Italia Group has accepted the offer to start the operation in question.” The outline deal was agreed at the end of October 2013.
The regulator also expressed concerns over the “social composition” of Telecom Argentina if it were controlled by an investment company. “For these reasons, the Board considered that Fintech is not in a position to operate and take control of the services and infrastructure of the company Telecom Argentina”, read the statement.
Telecom Italia has issued a statement claiming that Fintech will appeal the regulator’s decision. The Italian incumbent had a net debt of around €27 billion at the end of H1 2015, and is attempting to reassure its investors with a contingency plan.
Having already sold a 17% stake to Fintech, TI is trying to divest a further 51% by April 2017. If the sale is not complete by this date, TI has two options. It could scrap the deal then use a six-month call option to reacquire the 17% stake, either directly or through a holding company.
Alternatively, it can go ahead with the sale of its 51% stake in Sofora to a different buyer - provided it receives regulatory approval – with Fintech guaranteeing total proceeds to TI of a minimum $630.6 million. If the sale then raises more than this amount, the difference would be split between TI and Fintech according to an agreed ratio.
However, if TI does not sell the 51% stake to a third party within a 2.5 year period, its agreement with Fintech will lapse and the investment firm will pay the operator $175 million. Ti will then have a six-month call option to reacquire the 17% stake in Sofora, whether directly or via another part of the group.