Fitch may cut Finmeccanica rating after chairman's arrest

Puts company's 'BBB-' long-term rating under review for a possible downgrade

Ratings agency Fitch has put Finmeccanica's "BBB-" long-term rating under review for a possible downgrade following the arrest of the Italian defence group's chairman and chief executive Giuseppe Orsi.

Fitch said the arrest raises risks of "material disruption" in the state-controlled company's strategy and daily operations as well as of delaying a restructuring and asset disposal plan vital for the debt-laden group to keep its present rating.

Standard & Poor's already cut Finmeccanica to junk in January after the group missed its target for 1 billion euros of asset sales by the end of 2012.

Analysts said another downgrade to junk could impact the group's ability to receive pre-payments from customers and harm its competitiveness outside Italy.

Fitch also said reputational damages and their impact on future business were another concern.

Italian police arrested Orsi on Tuesday on a warrant alleging that he paid bribes to win a 560 million euro Indian contract, adding to a wave of corporate scandals shaking Italy before a general election.

It was not yet clear whether Finmeccanica had already called a board meeting to decide on the course of action, a source familiar with the matter said, noting that Chief Operating Officer Alessandro Pansa had enough powers to manage the group.

Fitch said it expected delayed asset sales will be carried out in the early part of 2013. Finmeccanica is expected to complete the sale of its stake in Avio in the second quarter and is in talks to sell its power engineering unit AnsaldoEnergia, which has attracted interest from foreign buyers such as Siemens and Doosan.

Shares in Finmeccanica fell more than 7% on Tuesday, while credit default swaps - the cost of insuring Finmeccanica's debt against default - rose sharply and its bond spreads widened.