* Company wants to show "sum of parts" higher than valued
* Firm could raise over 3.5 billion euros from listing
* Proceeds could be used to cut debt
By Clare Kane and Jesús Aguado
MADRID, Dec 3 Spain's Telefonica is
considering listing up to 15 percent of its Latin American arm
that could be used to help cut about 6 billion euros ($7.8
billion), over 10 percent, of its debt and safeguard its credit
Europe's biggest telecoms company by revenue raised as much
as 1.45 billion euros when it listed part of its German unit
in October, and has sold a number of assets this year
to cut its over 50 billion euros of debt.
It also scrapped its dividend for the first time since the
Spanish Civil War in the 1930s to preserve cash.
Chief Executive Cesar Alierta told the Financial Times on
Monday the next step could be to float a 10-15 percent stake in
the Latin American business to "send the message that the
sum-of-the-parts is much higher than the valuation of
A spokesman for Telefonica confirmed the plan to Reuters. He
said the potential flotation is being worked on within the
company, but has not been given board approval.
The company is expected to meet its leverage target of 2.35
x operating income for 2012, helping safeguard its investment
grade credit rating under pressure from macroeconomic factors in
Spain, where its nine-month revenues tumbled 13 percent.
Telefonica's share price has fallen 26 percent year-to-date
to 10.1 euros, underperforming the STOXX Europe 600 telecoms
index by about 15 percent this year on concerns about
its exposure to Spain and its debt.
Investors would likely find the listing attractive because
of Latin America's relatively good growth prospects. Alierta did
not say when a listing could take place, though the company had
previously said it would be possible in the first half of 2013.
Espirito Santo analysts said floating a 10-15 percent stake
of the unit, which operates in 14 countries and is particularly
strong in Brazil, could raise over 4 billion euros. But such a
move would be "far from straight forward," they added.
"(Latin America) as a whole includes a number of challenged
operations and there may be issues with repatriation of cash,
hyperflation and currency risk," they said in a note.
LATIN AMERICA RESTRUCTURING
Analysts value Telefonica's Latin American business at
around 35-40 billion euros, suggesting a 10-15 percent stake
could be worth anything from 3.5 billion to 6 billion euros,
giving the company a serious cash flow boost.
Telefonica likely wants to float an up to 15 percent stake
because a larger share would increase the weight of the Spanish
business in the parent business.
"Telefonica does not really need to do it for deleveraging
reasons but given that there is limited visibility in terms of
expected performance in Spain for 2013, this would create
greater financial flexibility and help offset further pressure
in the domestic market," said Moody's analyst Carlos Winzer.
"Ten to 15 percent seems reasonable to me, Telefonica does
not want to dilute cash flow to the parent company too much."
Telefonica recently created a holding company, Telefonica
Latinoamerica Holding, a move that paved the way for the initial
public offering of the business.
The company also announced last week that the headquarters
of its Latin American business would move to Brazil from Spain.
Telefonica's Latin America Chief Executive Santiago
Fernandez Valbuena said in November he did not believe in
listing individual countries separately.
Alierta said in the interview there were no further major
asset sales or flotations being prepared and the group had "no
intention to float our UK operations".
At 1158 GMT, Telefonica shares were flat at 10.1 euros.