UPDATE 2-Private equity firm Cinven buys telecom unit from Spain's Gas Natural

Mon Jun 9, 2014 8:12am EDT

* Cinven buys GNFT for 510 mln euros

* Spain's biggest private equity buyout this year

* Cinven targets Latin American growth (Adds Cinven comment, details)

By Freya Berry and Paul Day

LONDON/MADRID, June 9 (Reuters) - European private equity firm Cinven has bought the fibre network arm of Spanish utility Gas Natural for 510 million euros ($694.4 million), the companies said on Monday, in Spain's biggest private equity buyout of the year.

Gas Natural will book capital gains of around 250 million euros, before tax, from the sale of Gas Natural Fenosa Telecomunicaciones (GNFT), the Spanish group said.

GNFT offers services across cities in Spain and Latin America. Its core earnings (EBITDA) grew at a compound annual growth rate of 13 percent over the last three years, including a rate of 20 percent in Latin America.

"There will be an increase in data transmission, with fibre being the backbone for that growth to happen," Jorge Quemada, partner at Cinven, said in a telephone interview with Reuters.

"We see opportunities to deploy more fibre in Central America and Colombia."

Private equity activity in Spain has been sluggish since the financial crisis. Leveraged buyout activity totalled 2.8 billion euros in 2013 by value, according to Thomson Reuters data, half that of the 5.6 billion euros in 2007.

Spain emerged from its second recession since 2008 in the second half of 2013. The economy grew at its fastest quarterly pace in six years in the January to March period, prompting the government to raise their forecasts for this year and next.

But despite the improvement, private equity firms have struggled to deploy capital in the battered economy, with few major buyout opportunities.

"In the last three years we have actively been looking at investments in Spain," Quemada said. "The first one-and-a-half years were challenging...but we think now that the situation is much clearer."

ORGANIC GROWTH, SMALL ACQUISITIONS

Quemada added that while growth in Spain would be mainly organic, opportunities for consolidation were possible through small acquisitions. GNFT's assets are mostly located in Central America, where Gas Natural's electricity arm installed fibre optic networks alongside power cables.

Cinven's purchase will be financed with an all-senior leveraged loan financing led by UBS and Barclays. The loans will be syndicated to other lenders in the coming weeks, banking sources said.

Gas Natural has been in the telecoms business since 1998 when it bought its Spanish optic fibre network from Enagas, the same year that Union Fenosa deployed fibre networks in Central and South America. The two companies merged in 2009. Gas Natural did not say how it intended to use the proceeds from the sale.

GNFT is the ninth investment by Cinven's 5.3 billion-euro Fifth Fund. Earlier in the year the private equity house further sold out of French cable operator Numericable, realizing a return of 4.35 times its original investment.

Gas Natural shares ticked up to 21.925 euros at 1127 GMT, broadly in line with Spain's blue-chip index. ($1 = 0.7345 Euros) (Additional reporting by Paul Day, Tracy Rucinski, Andrés González and Jose Elías Rodriguez, and Claire Ruckin at IFR; Editing by Erica Billingham and Susan Thomas)

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