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Telefónica Plans Regional IPOs

Ray Le Maistre
5/31/2012

Telefónica SA (NYSE: TEF) is preparing a number of IPOs of regional business units, starting in Germany, to help focus its portfolio, cut its debts and improve its credit ratings.

The operator is already preparing an IPO of Telefónica Germany and is looking at potential flotations in Latin America, though it has not identified which of its assets there are set to be traded.

Telefónica has operations in eight South American countries, with Brazil by far its largest market (more than 75 million mobile users), plus four markets in Central America and a sizeable business in Mexico (about 20 million customers).

The carrier, which ended March with a net debt of €57.1 billion (US$70.9 billion), has recently had its credit rating cut by S&P, while Moody's has it under review. (See Telefónica Posts €748M Profit in Q1, Euronews: Tide Turns Against Handset Subsidies and Euronews: S&P Cuts Telefonica's Rating.)

Financial analysts cited in this Bloomberg article believe Telefónica Germany is worth between €7 billion and €9 billion ($8.7 billion and $11.2 billion).

The German operation has 25 million customers, including 18.6 million mobile and 2.5 million fixed broadband customers. It generated revenues of €1.26 billion ($1.57 billion) in the first quarter of 2012.

Investors appear to like the plan, as Telefónica's share price increased by 2.7 percent to €9.08 on the Madrid exchange in Thursday morning trading. A year ago the shares were worth €16.61 each.

The move comes as concerns grow about the stability of the national economy in Spain, Telefónica's domestic market.

— Ray Le Maistre, International Managing Editor, Light Reading

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