Spanish incumbent Telefonica is preparing to list its German unit, operating under the O2 brand, and looking into doing the same with some of its Latin American units in an effort to reduce debt and improve liquidity.
The Madrid-based telecoms group…
Spanish incumbent Telefonica is preparing to list its German unit, operating under the O2 brand, and looking into doing the same with some of its Latin American units in an effort to reduce debt and improve liquidity.
The Madrid-based telecoms group said the accelerated disposal of non-core assets forms part of its plan to reduce its leverage ratio to below 2.35x this year, while maintaining attractive remuneration for shareholders.
Telefonica did not specify which Latin American assets it may consider monetising – it has operations in more than a dozen countries in the region.
Commenting on Telefonica’s announcement, Nomura analysts noted its planned debt-reduction measures stand in stark contrast to the minority stake consolidation strategy it has executed over the past few years. In their view, these measures “highlight the seriousness of [Telefonica’s] balance sheet problems”.
Positive analyst reactions
However, Nomura stated the listing of “high-quality assets” such as Telefonica Deutschland – which the firm values at €8.5bn at 6.6x 2012 EBITDA – could attract relatively high valuations and pave the way for more radical changes to its asset portfolio.
Meanwhile, Bernstein Research analysts said they believe Telefonica’s debt-reduction plans “make a very good hand out of relatively poor cards”.
The firm estimates the telecoms group could raise about €6.4bn from the sale of non-core assets and an extra €5.3bn by selling 10% of its German and Latin American assets in IPOs. It noted Telefonica will also save about €4bn by paying with scrip, rather than cash, in 2013.
“By offering to IPO their German – and possibly LatAm assets – Telefonica kills three birds with one stone, making clear their intention to eventually merge O2 Germany with another business …”
Bernstein added this puts Telefonica in a better position to make acquisitions and negotiate better prices for other assets as it will be seen as a company with options.
Telefonica’s total net debt plus financial commitments at the end of March 2012 stood at €59.1bn, equal to a leverage ratio of 2.74x according to the company’s website.
