* Sells 40 percent stake to CMI for $500 million
* Deal allows debt cutting while bringing in new partner
* Price could rise by $72 million if assets perform well
By Tracy Rucinski
MADRID, April 30 (Reuters) - Spain's Telefonica is selling 40 percent of its Central American business to Guatemalan-based Corporacion Multi Inversiones (CMI) for $500 million in a drive to cut debt while keeping control of assets with potential to grow.
Europe's biggest telecom provider, battling a recession-hit home market and a heavy debt burden, sold a string of assets last year in a fight to bring net debt below 47 billion euros ($62 billion) this year from 51.3 billion euros in 2012.
The sale to CMI, owner of Guatemalan fried chicken chain Pollo Campero, brings in cash and a new partner in a business that Telefonica will continue to manage with majority control.
For the deal, Telefonica will spin off the assets from Guatemala, El Salvador, Nicaragua and Panama into a new group.
Analysts have long tipped Ireland, the Czech Republic and Central America as non-core assets that Telefonica might sell.
Yet Central America, with 30 million inhabitants - a third of whom are under the age of 15 - and a growing middle class, offers strong potential for wireless services compared with more mature Latin American markets and largely saturated Europe.
"The transaction allows Telefonica to crystallize some value and keep reducing its leveraging ... and illustrates the variety of options it has to pursue this goal," Espirito Santo Investment Bank said in a note to clients.
Telefonica has halted plans to float its broader Latin American business but is still considering selling smaller assets as part of its debt cutting. Reports have also flagged a partial listing of its Colombian business.
A senior executive told Reuters earlier this month that the company had handled all the tax and legal paperwork for an IPO in Latin America, but plans were "in the freezer" and it would take 45 to 60 days to get them ready again.
For now, Telefonica will add its global footprint to CMI's local know-how in a new business model that offers opportunities to jointly develop their markets.
CMI has transformed from a small family business in the 1920s into one of Central America's biggest corporations with interests in food, construction, finance and infrastructure. This is its first venture in telecommunications.
The sale price could rise by up to $72 million according to future performance, valuing the assets at 6.5 times earnings before interest, taxes, depreciation and amortisation (EBITDA) in 2012, Telefonica said in a regulatory filing.
Britain's Cable & Wireless Communications has said it wants to expand in Central America, both organically and through acquisitions, and was tipped as a potential buyer for some of Telefonica's assets in the region after raising cash from several asset sales.
"We are unsure where this leaves Cable & Wireless Communications," Espirito Santo said.
Telefonica's shares, which have gained 9.4 percent so far this year, were trading 0.4 percent lower at 11.11 euros, in line with declines on Spain's blue chip index and other European telecom firms.