Telefonica's Latin America IPO on hold, at least for now

SAO PAULO Tue May 21, 2013 6:07pm EDT

1 of 4. Santiago Fernandez Valbuena, President of Telefonica Latin America, poses as he speaks with journalists at the Reuters Latin America Investment Summit 2013 in Sao Paulo May 21, 2013.

Credit: Reuters/Nacho Doce

SAO PAULO (Reuters) - Spanish telecoms group Telefonica SA (TEF.MC) has put on hold plans to publicly list its Latin America unit, a senior executive said on Tuesday, but an IPO could be ready within a few months if the need arose.

Santiago Fernandez Valbuena, the head of Telefonica in Latin America, also told the Reuters Latin America Investment Summit that recent telecom reforms in Mexico had leveled the playing field in a market long dominated by tycoon Carlos Slim's mobile and fixed-line companies.

An IPO could raise $7 billion or more for Telefonica, analysts say, but Valbuena said the company's need for cash diminished as credit markets became more accommodating.

"We decided not to cancel those (IPO) plans but to shelve them - or put them in the freezer, if you will," said Valbuena. "If one day we think it's appropriate because of valuation reasons or financial reasons we can always take them back out. ... The time to execution would be much faster now - a few months."

Valbuena dismissed talk of a country-specific listing of the company's Colombia unit, something that had surfaced in the media last month. "Colombia needs a different treatment. What Colombia needs and will probably get is an infusion of capital," he said.

Telefonica owns 70 percent of its Colombia operation, with the remaining 30 percent stake held by the government. The company is determining how cash from the operation will cover commitments to pension plans before making a decision about how much to invest in the business, Valbuena added.

Latin America's steady growth and rapid transition to new cell phone technologies has led Telefonica to step up investment in the region this year, as it will in coming years, Valbuena said. But the region is not just devouring cash.

Brazil is on track to become the company's biggest generator of cash flow in the next two or three years, according to Valbuena, gauged by earnings before interest, taxes, depreciation and amortization minus capital spending.

Last quarter, Brazil passed Spain to become Telefonica's largest market by revenue.

LEVEL PLAYING FIELD IN MEXICO

Telefonica is also hoping to reap the fruits of a decade of investments in Mexico, Valbuena said, as an overhaul of telecom regulations there opens the market to more fair competition.

"The new government has decided to put an end to the anomaly of Mexican regulation," Valbuena said in an interview at Telefonica's regional headquarters in Sao Paulo. Depending how reforms are implemented, he added, they will be "either good or excellent for the development of the Mexican market."

After Telefonica suffered years of frustration in Mexico at the hands of billionaire Slim's dominant America Movil SAB (AMXL.MX), some were surprised to see the two companies have agreed to share their next-generation networks in Brazil.

Valbuena said that the tight timeline required by the government for the rollout of fourth-generation (4G) cell phone technologies ahead of the 2014 World Cup led to the partnership, following a similar accord between rivals TIM Participacoes SA (TIMP3.SA) and Grupo Oi SA (OIBR3.SA).

"I see nothing wrong with cooperating in Brazil because it is saving costs for both of us on 4G, which ... may have come a bit early for industry standards," he said. "It only makes sense that after TIM and Oi did their part, we were sort of forced to come together.

"This is not a global alliance - not even regional," Valbuena said. "It's more on a country by country basis."

In Brazil, Telefonica and America Movil will both build out their 4G networks in each city and then share a given number of each other's towers there.

The arrangement may yield fewer cost savings than the deal between TIM and Oi, which assigns each responsibility for a given region, according to analysts. Oi expects to save 200 million reais ($100 million) over three years through the agreement.

(Reporting by Brad Haynes and Alberto Alerigi Jr.; Editing by Kieran Murray, Diane Craft and Leslie Adler)

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