Telecom Italia shares plunge to 10-year low

Milan: Telecom Italia shares fell to a 10-year low on Friday as a grim sales outlook and plans to expand overseas in a much-heralded new strategy stoked fears over its costly debt.

Europe's fifth largest phone group by market capitalisation said late on Thursday it would cut its dividend to help pay for net debt of 35.7 billion euros ($55.01 billion), well above Telecom Italia's market cap of 29.4 billion euros.

"The debt is worrying. It is not sustanaible for a company to have 35 billion euros in debt with revenue of 31 billion euros, especially now that's so difficult to raise capital on the markets," said one trader.

The cost of debt will be 5.6 per cent in 2008, it said, in line with last year.

By 0930 GMT, shares were down 6.2 per cent to 1.4910 euros, having hit a 10-year low of 1.455. The group's credit default swaps widened to 235 basis points.

Last year, Spain's Telefonica bought a controlling 10 per cent stake in Telecom Italia with Italian banks Sanpaolo and Mediobanca, insurer Generali and the Sintonia holding company.

Telecom Italia chairman Gabriele di Genola said yesterday that the two companies will continue to be managed separately.

On Thursday, Telecom Italia said it would propose a dividend of eight cents a share, down from 14 cents last year, in order to retain more cash to reduce debt. Analysts had been expecting a cut to 6-11 cents a share.

This came as it reported a 19 per cent drop in 2007 net profit on falling margins and revenues.