Spanish telco Telefonica is planning to issue perpetual, hybrid securities to help fund its proposed purchase of KPN’s German mobile unit E-Plus.
A spokesperson for Telefonica said the financial details of the planned issue are not yet available….
Spanish telco Telefonica is planning to issue perpetual, hybrid securities to help fund its proposed purchase of KPN’s German mobile unit E-Plus.
A spokesperson for Telefonica said the financial details of the planned issue are not yet available. However, he named mandated banks for the transaction as BBVA, BNP Paribas, Citigroup, HSBC, Morgan Stanley, Societe Generale, UBS and Unicredit.
Assigning the planned issue a Ba1 long-term rating, Moody’s noted that the size of the hybrid instrument, to be issued by Telefonica Europe BV and guaranteed by Telefonica on a subordinated basis, is subject to market conditions.
The notes will have equity-like features, enabling the issue to be treated as 50% equity and 50% debt, the agency said. This enables Telefonica to maintain its leverage ratio.
Fitch, which has assigned the planned transaction a BBB- rating, said the securities will be issued in euros and have no formal maturity date. The agency added that the documentation provides for the issue of two tranches: a non-call five and a non-call eight.
According to Moody’s, proceeds from the transaction are to be used for general corporate purposes and to help fund Telefonica’s recently-agreed purchase of E-Plus for a total €8.55bn. The E-Plus transaction is subject to regulatory approval and not expected to close before Q2 2014.
Moody’s said the hybrid issue will be used to fund 50%-60% of the €5bn cash component of the deal. The remainder will be financed via a €900m rights issue, a mandatory convertible and debt, the agency added.
Moody’s explained that the Ba1 long-term rating reflects the deeply subordinated nature of the debt within the company’s capital structure.
The Spanish telco improved its offer for E-Plus in late August from €8.1bn to €8.5bn. In exchange, Dutch telco KPN’s major shareholder America Movil (AMX) committed to vote in favour of the deal at a meeting on 2 October. Under the new deal arrangement, KPN will retain a 20.5% stake in Telefonica Deutschland, nearly 3% higher than the 17.6% agreed originally. Telefonica will have a call option to acquire the 2.9% stake for €510m plus interest a year after completion of the sale.
