MADRID Spanish telecoms firm Telefonica (TEF.MC) could list Latin American subsidiaries next year, the latest step in efforts to pare debt it estimates will be 50 billion euros ($64 billion) at year-end.
Like its regional peers, Europe's biggest telecoms group by sales is being squeezed by weak economies, regulatory pressures and structural changes.
It said a spin-off of Latin American businesses via a share sale was an option as it works to cut borrowings built up over a decade of expansion.
"No decision has been taken on such a transaction but we are working on preparations in case we decide to move ahead with it," chief financial officer Angel Vila said on a call to discuss nine-month results released on Wednesday.
Telefonica Latin American Chief Executive Santiago Fernandez Valbuena said at the weekend that a sale could take place next year.
Revenue from Telefonica's Latin America operations has overtaken its European businesses for the first time and now accounts for 49 percent of the company's turnover.
Telefonica's shares, which have lost a quarter of their value this year on debt concerns, were down 1.2 percent at 10.09 euros by 1500 GMT, compared with a 1.9 percent decline on Spain's blue chip index .IBEX.
The Spanish group has just listed part of its German 02-branded division 02Dn.DE and has sold its call center business Atento. The group has also scrapped its dividend for 2012.
"We are pointing towards 50 billion euros of net financial debt by year-end," CFO Vila said.
Telefonica said earlier on Wednesday it had shaved a further 3.2 billion euros from the 56 billion euros of debt it carried in September, taking its net debt ratio to 2.44 times underlying operating income.
This would help the company move towards its year-end debt target of less than 2.35 times core operating income.
"The company's year-end leverage target of 2.35x looks achievable," said Stuart Reid, senior director at Fitch Ratings. He said Fitch considered progress with disposals had been good, regardless of where the debt ratio would be at the year-end.
But Banesto Bolsa analysts described Telefonica's target as "ambitious" and estimated Telefonica would need to generate at least 1.5 billion euros via further asset sales to meet it.
Telefonica could face higher financing costs if Spain - rated just one notch about junk status by credit rating agencies Moody's and Standard and Poor's - is downgraded because of the euro zone crisis.
Telefonica's European businesses, the largest of which are Spain, Britain and the newly-listed German unit, registered a third quarter revenue decline of 6.8 percent to 7.44 billion euros.
In Spain, which accounts for about one quarter of group revenues, total customers in fixed and mobile were down by 7.5 percent in the third quarter. Telefonica is now the only player in Spain not offering cut-price phones after rival Vodafone (VOD.L) reintroduced subsidies this week.
Bernstein analyst Robin Bienenstock said investors would have to wait until 2013 to see the benefits of changes being made. "The weakening margins in LatAm, price competition-induced wireless declines in Spain and weaker trends against competitors in Europe are unlikely to abate this year."
Telefonica is sticking to a year-end target for revenue growth of between 0 and 1 percent.
It reported a 10.7 percent increase in core operating income to 15.7 billion euros and a 0.3 percent dip in revenues to 46.5 billion euros year-on-year, slightly ahead of analysts' forecasts in a Reuters poll.
Telefonica posted a 26.4 percent increase in nine-month net profit, largely due to a favorable comparison with the third quarter of last year when it paid 2.7 billion euros for laying off workers in Spain.
The company's subsidiaries in Brazil and Germany reported results on Tuesday, showing a 30 percent drop in profit at Telefonica's Brazilian arm and slowing revenue growth in Germany. ($1 = 0.7812 euros) (Additional reporting by Leila Abboud in Paris. Editing by Jane Merriman and David Cowell)