Alex Bolis, group treasurer
What challenges have you faced in accessing the capital market this year?
It has been more difficult to read and anticipate sentiment towards corporate credit in general this year and harder to identify the best moments to access the markets.
It has been even harder for the telecom sector because these borrowers have not historically been regular or timely issuers, and their funding needs have not followed a predictable path, being related more to extraordinary items than recurrent ones. Over the past two years, funding in the sector was driven to a large extent by either large acquisitions or funding for the UMTS licenses
At the beginning of the year we were able to take advantage of significant demand for liquidity. We had watched increasing buying of our name in the secondary market and it appeared the best time for us to launch a new issue.
There was also evidence of private placements by telecoms companies that were being rapidly absorbed. Our 2005 and 2012 issues launched in January were the first public offerings of the year from our peer group.
What is your funding target for 2002?
At a Telecom Italia level, the funding target included Eu4bn in capital markets transactions. We started with Eu1.5bn of pre-funding in December 2001, issuing a 2005 FRN, led by Caboto, Citigroup/SSSB, JP Morgan and UBM.
After this, with the Eu2.5bn in 2007 and 2012 bonds issued via JP Morgan, Lehman Brothers, Mediobanca and Merrill Lynch in January, we completed Telecom Italia's funding requirements for the year.
We also rolled over Eu7.5bn in bank lines, extending their maturity via the inclusion of a three year tranche and of term-out options on the 364 day portion. The largest part of these lines is meant to stay unfunded, providing a liquidity cushion apportioned to the size of the group.
Do you have any plans to develop your funding strategy over the longer term?
We do not have a sizeable programme for next year. We have about Eu2bn of debt maturing next year and we will be looking to refinance part of it and repay another portion from our free cashflows. However any capital markets refinancing next year will be driven opportunistically rather than by actual need. Over the longer term, we will look selectively at opportunities in any market that offers attractive funding, but with a preference for longer dated maturities.
We are close to completing the Eu5bn asset disposal programme, announced less than a year ago. With this programme almost complete, combined with our strong business profile, we are now open to issuing longer dated maturities at more attractive levels.
What is your issuance strategy regarding Olivetti?
The approach of both Telecom Italia and Olivetti to the capital markets is closely co-ordinated. We always make clear to investors the take down programme in the capital markets for both companies. There are timing considerations with these exercises, as they can never coincide.
The links between the two companies are well understood. Some investors prefer to buy debt issues from the company closer to the cash, while others prefer to enjoy a larger yield but holding bonds subordinated to Telecom Italia's debt. Even adding the two debts of both companies together, the year end 2002 consolidated amount will be around Eu34bn, which is still low compared to our peers.
What markets have offered you the most attractive funding this year?
The euro markets have offered the best opportunities this year. We would seriously consider funding in other markets if economically efficient. Expansion of the investor base would be a plus, but would have to be well conducted to ensure thorough understanding of our credit.
The sterling market is an interesting alternative to the euro market. If the right opportunity shows itself, we have all the time we need to identify the best time to issue.
Have you made any changes to accommodate investor concerns with regard to corporate governance and transparency?
We believe that continued progress in the appreciation of our credit in the financial markets is the best test of effectiveness of our efforts in this area.
Because we have been improving the quality of our reporting and levels of disclosure over the past few years, we have not needed to take any specific action because of the corporate governance issues that clouded the first half of the year.
Last year's management change due to the Pirelli acquisition led us to improve even further in this direction. We always look to find ways to develop on other fronts, to open up new dialogue with investors and other stakeholders in the firm.
In addition, we have consistently taken a very transparent approach both in terms of disclosure of potential off-balance sheet liabilities and the way we use our balance sheet to raise debt.
Why are you not active in the private market?
Over the past two years, the size of our refinancing has been large and we felt that they would have been best conducted via large public deals.
However, we are now well positioned to access genuine private placements on the back of our well established credit curve. There is no specific need at present to tap this market we aim to become a regular user of smaller, targeted transactions. We would only be interested in genuine private placements that have the final investor on the other side - not in deals that would sit on the banks' books and potentially damage our secondary market performance.
How do you choose lead managers for your benchmark issues?
The first category they need to fulfil is proven capacity to deliver quality performance. The second is overall commitment to the TI Group. In addition, it is important that they must also have been committed to maintaining a liquid secondary market on our bonds.
You are renowned for your hands-on approach during transactions. How far do you like to be involved in the execution of your transactions and why?
Direct dialogue with investors has proven to be very valuable. It is of utmost importance that an issuer speaks in an unbiased way with high quality end investors, so he can read the market with greater accuracy.
As a transaction unfolds and the allocation of bonds is brought to the market, our involvement is very useful especially when there is a relatively large group of bookrunners.
If the issuer retains final decision in making allocations, it signals to investors the protection of the highest quality orders that appear in the book. This has proved extremely important in the secondary market performance of our bonds.
If allocation is well balanced, investors maintain a good memory of the immediate after market performance and leaves the borrower in a good position to return to the market.
This again highlights the importance of the bookrunners' duty to ensure secondary market making on our bonds.