* 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 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.