* 750 mln euro bond converts to Telecom Italia shares in 3
* Marks first time Telefonica sells Telecom shares
* Telefonica is Telecom's biggest shareholder with 14.8 pct
* Telecom chairman sees no strategy change
(adds comment from Telecom Italia Chairman)
By Julien Toyer and Leila Abboud
MADRID/PARIS, July 16 Telefonica will
sell 750 million euros ($1 billion) in bonds that convert to
Telecom Italia shares, it said on Wednesday,
effectively loosening its grip as largest shareholder.
In a notice to Spain's market regulator, Telefonica said the
bonds, which pay 5.25 to 6 percent interest a year, would mature
in three years but could be converted at any time before that or
paid in cash if conditions are met.
The mandatory exchangeable bond is a way for Telefonica to
reduce its 15 percent stake in Telecom Italia by about 5
percent, said a person close to the transaction.
It could also be a first step towards a full exit from the
Italian carrier, although Telefonica has not made a decision on
that issue, said another person familiar with the company's
A Telefonica spokesman declined to comment.
"This is a way for Telefonica to sell part of its stake in
Telecom Italia while ensuring against downside risk if the
shares lose value in the next three years," said the first
The bond issue will be coordinated by HSBC Bank, JP Morgan
Securities and Societe Generale.
The move is the latest in a series of changes to the
ownership and board of Telecom Italia in recent months, touched
off by the desire of key shareholders to exit.
Italy's Assicurazioni Generali, Intesa Sanpaolo
and Mediobanca took first steps last month to
dissolve a seven-year shareholder pact with Telefonica that
controlled Telecom Italia, making way for new investors in the
The Italian groups plan to get rid of their stakes in
Telecom Italia in the coming months by selling shares on the
Telefonica has also been under pressure from Brazilian
competition regulator CADE for the influence it has over Telecom
Italia, which owns Brazil's second largest mobile operator TIM
Participacoes. Telefonica owns and operates Brazil's
leading mobile carrier Vivo, which CADE sees as a
In December CADE ordered Telefonica to either sell its
interest in Telecom Italia, or seek a new partner for Vivo and
gave it 18 months to comply.
At that time, Telefonica's preferred option was to engineer
a sale of TIM by Telecom Italia, breaking up the mobile operator
and dividing its assets and network between itself and the other
two mobile operators in Brazil, America Movil and Oi.
An analyst at an international brokerage said the bond could
help Telefonica appease the competition regulator in Brazil and
may allow the Spanish group to pursue its planned break up of
The exchangeable bond "is invariably going to lead people to
ask what Telefonica plans to do with the rest of its stake in
Telecom Italia," said a third person close to the deal.
"After all this is the first time Telefonica has started to
sell its Telecom Italia shares."
Telecom Italia Chairman Giuseppe Recchi told Reuters that
the move by Telefonica would not affect the Italian group's own
Telefonica shares closed up 1.4 percent to 12.28 euros, in
line with the European telecoms index.
Telecom Italia's were up 7.5 percent to 0.91 euros, a rise
that traders said was driven by hopes of mobile consolidation.
($1 = 0.7393 Euros)
(Additional reporting by Danilo Masoni in Milan; Editing by
Sarah White/Ruth Pitchford)