Telefonica Deutschland is reportedly gearing up for a benchmark eurobond of €500m (US$640m) or more to enable its Spanish parent to take advantage of lower borrowing costs in Germany.
Telefonica Deutschland, which operates under the 02 brand name, has…
Telefonica Deutschland is reportedly gearing up for a benchmark eurobond of €500m (US$640m) or more to enable its Spanish parent to take advantage of lower borrowing costs in Germany.
Telefonica Deutschland, which operates under the 02 brand name, has hired UBS, Bank of America, BayernLB and Commerzbank to coordinate the sale of senior-secured notes as early as this month, Bloomberg reported, citing documents sent to investors. The issue would be benchmark size – generally about €500m – and have a maturity of between five and seven years.
In mid March O2 Germany CFO Rachel Empey had told a German business publication that the telco was considering a bond issue.
The telco, which raised about €1.5bn via its IPO on the Frankfurt Stock Exchange last October, has begun marketing the issue, with Empey meeting investors in Germany, France, the Netherlands, the UK and Switzerland, todays report stated.
The new issue will help repay a €1.25bn loan Telefonica provided the German unit, according to the report.
Madrid-based Telefonica recently sold all its treasury stock to investors as part of efforts to cut debt, raising about €975m. The company has pledged to reduce debt to €47bn this year after reporting a net pile of €51.2bn in its 2012 results, down from €56.3bn the previous year.
Analysts have noted that the planned bond transaction makes sense given Germany’s borrowing costs are significantly lower than Spain’s. While European Central Bank president Mario Draghi has pledged to do whatever it takes to defend the euro, reducing the spread between yields on debt in different nations, the German treasury’s borrowing costs for 10 years are 1.3%, while its Spanish counterpart’s stand at 4.9%.
Bernstein Research senior analyst Robin Bienenstock said the planned transaction makes logical sense given the lower refinancing costs in Germany, adding that the Spanish parent group will likely bolster debt-reduction efforts by selling off more assets.
Ivon Leal, head of telecoms and media research at BBVA in Madrid noted that speculation Telefonica Deutschland would seek to issue bonds in 2013 to repay debt owed to its parent began to mount at the time of its IPO.
“As long as it can slightly reduce interest costs, it’s obviously good news,” he said.
A spokesperson for Telefonica Deutschland declined to comment on the matter, but noted that the company, as an independent German corporate, is always evaluating options for alternative financing sources.
At the time of writing, Telefonica Deutschland’s share price was down 1.63% on the previous day’s trading to According to €6.15 per share.
