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Telefónica still in heavy debt following sale of Telxius

Written on Monday, 30 October 2017 08:33

Spanish telecoms giant Telefonica released its financial results for the January-September period, showing a profit of €2,439 million (+9.6 percent) and a free cash flow generation of €3,226 million (+ 39.2 percent). The company still faces heavy debt despite the sale of its infrastructure arm Telxius. Telefónica’s debt fell by €3.646 million to €45.947 million.

Telefónica confirmed in February it would sell up to 40 percent of its infrastructure unit Telxius to US investment fund KKR for 1.27 billion euros ($1.35 billion). The company, which has been burdened by heavy debt, failed last September to float the unit after not being able to attract enough demand for the share sale.

Telefónica said it would keep a majority stake and operational control of Telxius, which operates telecommunications towers and subsea fiber optic cables, and would continue to consolidate it into its accounts. The subsidiary manages 16,000 telecoms towers in five countries as well as 65,000 kilometers (40,000 miles) of submarine fiber optic cables.

Telefónica’s revenues decreased 2.5 percent year-on-year in Q3 2017 to €12,754 million (€38,846m in the first nine months; +1.4 percent). In organic terms, however, revenue growth accelerated to 4 percent (+2.9 percent in January-September), driven by improved contributions from Telefónica España, Telefónica Deutschland and Telefónica Hispanoamérica.

Handset sales had a year-on-year double digit growth in the quarter (+11.8 percent). Mobile data revenues increased by 16.3 percent year-on-year in organic terms in the quarter (+15.9 percent in January-September), representing 58 percent of the quarterly mobile service revenues.  

Telefónica has continued to focus on expanding 4G and UBB networks, and the simplification and digitalization of processes and systems, also reflecting integration synergies and including €502 million in spectrum and licenses.

Telefónica maintained its focus on accelerating digital transformation to contribute to improving its efficiency and growth to the maximum. In order to increase the value of network and connectivity, UBB rollout continued at a strong pace, 42.8 million premises passed with FTTx and cable, 18 million in Brazil (FTTx and cable), 18.6 million in Spain (FTTH) and 6.2 million in Hispanoamérica (FTTx and cable). 4G coverage increased to 69 percent.

Published in Finance

Spanish telecoms giant Telefónica confirmed it will be selling up to 40 percent of its infrastructure unit Telxius to US investment fund KKR for 1.27 billion euros ($1.35 billion). The company, which is burdened by heavy debt, failed last September to float the unit after not being able to attract enough demand for the share sale.

Telefónica said it will keep a majority stake and operational control of Telxius, which operates telecommunications towers and subsea fiber optic cables, and would continue to consolidate it into its accounts. The subsidiary manages 16,000 telecoms towers in five countries as well as 65,000 kilometers (40,000 miles) of submarine fiber optic cables.

Telefónica, under the agreement, will sell a 24.8 percent stake of Telxius to KKR for 790 million euros. KKR will then have the option to purchase an additional 15.2 percent stake in Telxius for at least 485 million euros. The transaction values Telxius at 3.2 billion euros or 12.75 euros per share.

KKR’s head of Spain, Jesus Olmos, said in a Telefónica statement: “The combination of Telefónica’s industrial expertise and KKR’s financial and operations support will help Telxius as it continues to scale and grow.”

Telefónica had asked for 12-15 euros per share for Telxius when it tried to float the unit last year but the offers it received were too low. The move seems to be the “most logical outcome given the great difficulties in finding investors for the subsidiary in the past, combined with Telefónica’s refusal to sell it at any price,” said Bankinter, a Spanish bank, in a research note.

Telefónica’s debt was at 49.9 billion euros at the end of October last year, according to an AFP report. Therefore, the company is eager for cash, hence the sale of its infrastructure subsidiary, and is also considering a possible listing of its British unit 02, after the European Commission blocked its sale to Hong Kong group Hutchison.

Published in Finance