Regulator likely to fine Telecom Italia over bond deal: sources

Reuters News
Posted: Dec 11, 2013 11:55 AM

MILAN (Reuters) - Italy's market watchdog Consob is likely to fine Telecom Italia for procedural irregularities over the sale of a 1.3 billion euro ($1.79 billion) convertible bond to Telefonica and other investors, legal sources familiar with the matter said.

Consob opened a probe into the bond in November to see whether the operation breached so-called related party procedures.

The regulator is expected to send Telecom Italia a letter questioning the irregularities in coming days. It will then have one year to decide on any fine, the sources said.

"Telecom Italia has admitted violations, I think a sanction will arrive," one of the sources told Reuters on Wednesday.

A spokesman for Consob declined to comment, while Telecom Italia could not be reached for comment. In November, when Consob began its investigation Telecom Italia said it had always respected Italy's financial market rules.

A fine may only have a small financial impact but would be a reputational blow for Telecom Italia already under pressure from activist investors seeking to remove its board at a shareholder meeting on December 20.

The convertible bond was part of chief executive Marco Patuano's new business plan aimed at fixing the phone group's balance sheet and reviving its business.

But the deal was criticized by Marco Fossati, who holds 5 percent of Telecom Italia and small shareholders. Small shareholders said the bond penalized minority investors, which would see their stakes diluted when institutional investors who bought it will convert it into Telecom Italia shares.

A large part of the bond was sold to Telefonica, which controls Telecom Italia together with Italy's Generali, Intesa Sanpaolo and Mediobanca. U.S. funds BlackRock and Och Ziff Capital Management were also buyers of the bond.

($1 = 0.7251 euros)

(Reporting by Stefano Rebaudo, writing by Danilo Masoni. Editing by Jane Merriman)