MILAN- Telecom Italia (TIM) will raise 1 billion euros ($1.2 billion) with its first green bond, one of the lead managers said on Monday, as Italy's biggest phone group strives to upgrade its networks.

The sale of the eight-year bond, which marks TIM's return to the bond market after a nearly two-year absence, attracted over 3.9 billion euros in preliminary orders, the lead manager added.

The former phone monopoly is working to modernise its fixed and mobile grids to improve energy efficiency as it targets carbon neutrality by 2030. Green bonds allow borrowers to raise funds for projects that benefit the environment.

Final guidance on price was set on a yield of 1.75%, according to a lead, down from initial indications of a yield of around 2.25%, equivalent to a spread of 255-260 basis points over the mid-market swap rate.

Banca Akros, BNP Paribas, Credit Agricole CIB, Deutsche Bank, UniCredit, Banco Santander, BBVA, Credit Suisse and UBI Banca were the lead managers for Monday's bond sale.

Last month, Moody's downgraded TIM's rating further in junk territory, citing "a very competitive operating environment in Italy which will further constrain the company's ability to strengthen cash flow generation and reduce leverage".

But TIM took advantage of record-low borrowing costs driven by the massive stimulus measures deployed by the European Central Bank to help the euro zone economy weather the impact of the coronavirus pandemic.

When it last tapped the market in April 2019, TIM raised 1 billion euros via a senior bond due in April 2025 at a yield of 2.875%.

The yield on that issue, which surged to a high of 5.5% during Italy's first COVID-19 wave in the spring, was around 1.5% on Monday.

($1 = 0.8207 euros)

(Reporting by Elvira Pollina, Sara Rossi and Stefano Bernabei, Editing by Mark Potter, Kirsten Donovan and Bernadette Baum) ((valentina.za@thomsonreuters.com; +39 02 6612 9526;))