Telefonica SA (TEF), the Spanish phone company that’s merging its Colombian assets to help cut $1.7 billion in debt, will have to find buyers for units such as call-center business Atento to soothe investors concerned with liability levels.
Telefonica will combine its Colombian wireless division with the fixed-line unit it co-owns with the local government, giving Telefonica 70 percent of the enlarged company and the state the remainder, the Madrid-based company said yesterday. The move doesn’t go far enough toward cutting a debt pile that jumped to 56.3 billion euros ($75 billion) in December from 42.7 billion euros in 2008, investors said.
“Selling small bits and pieces won’t solve the debt problem,” said Robin Bienenstock, a London-based analyst at Sanford C Bernstein. “Even if Telefonica wanted to sell something more significant, it would be complicated to sell at a good price amid these market conditions and would take time.”
Chief Executive Officer Cesar Alierta, 66, in December cut Telefonica’s dividend for the first time in a decade and has reduced its workforce and halted major acquisitions. The operator has announced the sale of a stake in satellite company Hispasat SA. Shares in other publicly traded companies, including Portugal Telecom SGPS SA (PTC) and Zon Multimedia Servicos de Telecomunicacoes e Multimedia SGPS SA, may follow, while the company must maintain its businesses in fast-growing Latin American markets to offset a decline in its domestic market, investors said.
Telefonica’s shares have lost 33 percent in the last year while the Bloomberg Europe Telecommunication Services Index (BETELES) lost 14 percent. The stock lost 2.5 percent to 12.04 euros today at the 5:30 p.m. close in Madrid, valuing the company at 55 billion euros.
In June, Telefonica pulled a planned 580 million-euro initial public offering of Atento, which operates in Europe and Latin America and employs more than 150,000 people. Telefonica held a 2 percent stake in Portugal Telecom as of Jan. 20 and less than 5 percent of Zon as of March 29. It also holds a 6.1 percent stake in Amper SA (AMP), a Spanish maker of communications equipment.
As part of yesterday’s agreement, Colombia’s government, which owns 48 percent of Colombia Telecomunicaciones, will assume the same portion of the fixed-line venture’s payment obligations to the Parapat pension fund. The state’s 30 percent stake in the enlarged company may increase by as much as 3 percentage points in 2015.
“The deal in Colombia is clearly a step in the right direction but it’s not enough,” said Peter Braendle, who helps manage about $60 billion at Zurich-based Swisscanto Asset Management AG, including Telefonica shares. “At the end of the day, I’m still happy that they do business in a country with an improved economic outlook.”
Telefonica will continue to sell non-core assets in order to reduce debt this year and reduce leverage, Finance Chief Angel Vila said Feb. 24. However, the phone operator is “extremely happy” with its stake in China Unicom Hong Kong Ltd. (762) and wants to keep it and grow the companies’ collaboration further, Alierta said then. Telefonica also plans to keep its stake in Telecom Italia SpA (TIT), he said.
“It seems that the call-center unit Atento will be the next thing to offload,” Francisco Salvador, a Madrid-based strategist at FGA/MG Valores, said by phone. “A big problem may come from Argentina, where Repsol’s experience doesn’t bode well for other Spanish companies including Telefonica.”
YPF, Argentina’s largest oil company and a unit of Madrid- based Repsol YPF SA (REP), has lost 12 licenses in five provinces since March 14 after Argentina President Cristina Fernandez de Kirchner’s government demanded higher investment to curb output declines and help cut imports.
“Argentina is always challenging with politics,” said Braendle, adding he sees a similar situation in Venezuela. “Other competitive markets such as Mexico for instance have a more reliable regulatory environment.”
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