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What Will Elliott Do?

11 April 2018 by lberuti

There are many question marks around Italy at the moment. The country is still waiting for someone to be appointed to form a government, even if it seems that Matteo Salvini of the Eurosceptic League may be asked by Italian president Sergio Mattarella to have a go next week. That uncertainty has made investors a bit cautious towards anything Italian in the recent past. The odd one out was certainly TITIM ( Telecom Italia Spa ) though. Ever since the activist fund Elliott started building a stake in the company – they now hold 9% of the company -, credit investors have been worried about the implication for the balance sheet of the company. Elliott released earlier in the week a presentation on their potential plans. Under the proposals, net leverage will be reduced to 1.9x, bringing it in line with peers. If the company achieve these targets, analysts reckon ratings could get to BBB/BBB- and as such trade at similar levels to Telefonica, whose 5-year risk premium is worth 80bps. It went a long way to allaying debt holders’ fear around Elliott’s involvement, and TITIM has been one of the best performers among high beta names in Europe. Its 5-year CDS has tightened by 10bps to 140bps over the last 3 sessions.