* 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 rating.
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 Telefonica".
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.