Telefónica to sell German division
©Reuters
Telefónica is preparing to spin off its German division and some assets in Latin America in stock market listings as the Spanish telecoms group struggles to cut its debt pile.
Analysts have estimated that the equity of its German unit is worth as much as €9bn while its total Latin America division would command at least €40bn.
The company did not specify which parts of the Latin American business were being considered, with the largest of these being its units in Brazil and Mexico.
Telefónica said it had not made a decision on when the listings would take place but it would help accelerate its debt reduction plans.
The former Spanish state monopoly has been struggling under net financial debt of €57.1bn, which forced it late last year to cut its dividend, having pledged to investors it would maintain the payout. In November, the company announced its first quarterly loss in nine years.
Collapsing revenues in Telefónica’s domestic market have forced it into large-scale corporate restructurings, including reducing its workforce in Spain by up to 20 per cent and rolling what was once its flagship division into its Europe-wide unit.
Analysts said Telefónica would struggle to achieve good prices for the German operation and any Latin American business it decided to sell a stake in, as ongoing turbulence in global markets had damaged investor demand for flotations.
“It is going to be very hard to spin off anything in these markets at sensible valuations,” said Will Draper, an analyst at Espirito Santo.
An attempt last year to spin off its Atento call-centre unit was pulled after it failed to attract enough interest.
Telefónica shares have underperformed the European telecoms sector by 40 per cent over the past 12 months and Spain’s Ibex 35 index by 10 per cent as investors have shied away.
This week it was surpassed as Spain’s most valuable listed company by Inditex, owner of the Zara clothes brand.
The move to spin off subsidiaries to raise capital mirrors a similar strategy used by Banco Santander, Spain’s largest bank by assets, which has sold chunks of its Brazilian and Chilean arms and is preparing the sale of its Mexican unit.
“We are likely to see several more Spanish companies with operations in Latin America using this strategy,” said one Madrid-based investment banker.
Telefónica said it would still pay a €1.50 dividend this year but said the cash element of this has now been reduced to 40 cents, with 20 cents coming from share buybacks and the remainder as a scrip, or share dividend.
If Telefónica had paid the whole dividend in cash, analysts said it would have used about 86 per cent of its cash flows just on paying the dividend, leaving very little flexibility to reduce debt.