Telefónica signals LatAm part- float

Telefónica is working on plans to list 10-15 per cent of its Latin American operations in an attempt to show that financial markets have undervalued the heavily indebted Spanish telecoms group.

César Alierta, chief executive of the Madrid-based group, said that it could float the stake in Latin America to “send the message that the sum-of-the-parts [of the businesses] is much higher than the valuation of Telefónica”.

The potential flotation of the unit is being worked on within Telefónica although has not been given board approval. Analysts have valued the business at about €40bn given its strong business in a healthy Brazilian telecoms market.

There are no further major asset sales or flotations being prepared aside from the Latin American operations, with Mr Alierta stating that there was “no intention to float our UK operations” in spite of recent analyst speculation.

He said that Telefónica was on track to bring down net debt to near €50bn, from €58bn, following the offering of part of Telefónica’s German unit, which was the biggest European IPO this year. Telefónica has also sold a stake in China Unicom and the Atento call-centre division in recent months.

“We have an extremely comfortable liquidity position with covered maturities for a number of years,” Mr Alierta told the FT in an interview, addressing concerns about the company’s financial health.

The group has seen worsening economic conditions in its domestic market and worries that the servicing of its huge debt burden could be affected by a cut in the credit ratings of the company or the country as a whole.

Spanish executives are increasingly resigned to the country’s credit rating being downgraded by at least one major rating agency next year, and are accelerating debt reduction plans in anticipation.

“We are on track to bring down net debt towards €50bn. People had doubted we could do this, so we reduced close to €8bn of debt,” Mr Alierta said.

A flotation of part of its Latin American business would allow market visibility into the value of the group, said Mr Alierta.

“LatAm is a whole continent and has a value of parts benefit,” he said. “We have a much lower price/earnings than some competitors when our operations in Brazil are so much stronger.”

The holding company that manages Telefónica’s assets in the region is expected to be transferred from Spain to Brazil next year, which analysts have seen as a precursor to a listing.

Espirito Santo said: “We believe these movements are an indication that Telefónica is preparing the path for the potential listing of its LatAm unit next year, a scenario alluded to by the company several times and which has to be seen in the context of efforts in reducing leverage.”

The bank values the business as a whole at €39.4bn, which means that Telefónica could hope to raise more than €4bn if it progresses with plans for the 10-15 per cent stake flotation. The Latin American business made operating revenues of €4.1bn on revenues of €22.5bn in the first nine months of the calendar year.

Mr Alierta said that the company was making a rapid transition from its traditional telecoms business to one facing a digital future providing mobile and fixed-line internet and web services.

He said: “We were first a year ago when we started Telefónica Digital, and we have been able to gain a lot of experience and knowhow. We see a lot of potential for the business. Many other telcos are imitating us. We are building for the next 20 years, we have the asset base for the next 20 years to become the digital telco.”

(Daniel Thomas and Miles Johnson | Financial Times)