Telefonica SA (TEF), the Spanish phone company selling assets to cut debt, has held off preparations for an initial public offering of its Colombian division after emerging stock markets tumbled, according to three people familiar with the situation.
A share sale being explored this year will probably be pushed into 2014 at the earliest as Telefonica considers options for raising funds, the people said, asking not to be identified because the deliberations are confidential. The company, which controls 70 percent of the unit, is watching how Colombia’s presidential elections next May affect the state’s 30 percent holding, two of the people said.
Telefonica turned to the Andean country this year after halting an IPO plan for all of its Latin American assets. The Madrid-based carrier could raise more than 500 million euros ($644 million) by selling a 19 percent stake in the Colombian division to retain control, according to an April estimate by Andres Bolumburu, an analyst at Banco de Sabadell.
“This is a tough deal to get done as it implies very complex negotiations between Telefonica and the Colombian government with regards to the deleveraging of the subsidiary,” said James Ratzer, a London-based analyst at New Street Research. “Investors will only subscribe to an IPO with a much lower level of debt.”
Telefonica is talking to the local government on good terms to explore ways to strengthen the capital structure of the unit, without ruling out an IPO, according to a spokeswoman for Telefonica in Madrid.
The stock climbed 3.6 percent yesterday, the biggest gain in more than three months, after Bloomberg News reported the deliberations. Telefonica is holding off the IPO plan as it makes progress elsewhere in cutting debt. The company last month agreed to sell its Irish division for as much as $1.1 billion. Europe’s most indebted phone company intends to bring its net debt below 47 billion euros this year, from about 51.2 billion euros at the end of March.
Today, the stock slipped 0.9 percent to 9.98 euros at 2:28 p.m. in Madrid.
The MSCI Emerging Markets Index has lost 12 percent this year, compared with an 8.3 percent increase in the MSCI World Index of developed-nation shares, partly reflecting investors’ concerns about an economic slowdown in countries such as China and Brazil.
Yields on Colombia’s benchmark peso bonds due 2024 have surged 1.8 percentage points to 6.72 percent in the last two months and the local currency has dropped more than 4 percent after Federal Reserve Chairman Ben S. Bernanke signaled the U.S. central bank will start reducing stimulus that buoyed emerging-market assets as investors sought higher yields.
Santiago Fernandez Valbuena, the phone company’s top Latin American executive, said in an interview last month that the Colombian government is reluctant to dilute its stake.
Telefonica is struggling to compete in Colombia against billionaire Carlos Slim’s America Movil SAB (AMXL), which dominates Latin America’s fourth-largest economy with 62 percent of mobile-phone subscribers. Telefonica also needs to cut a $1.5 billion pension-fund deficit that has to be paid off from the company’s earnings, according to Fernandez Valbuena.
The unit is valued at about 3 billion euros, which is equivalent to the amount of debt in the subsidiary, according to Ratzer. A solution to the high level of debt would require a capital injection by the company and the government, he said.
While Colombia represents less than 3 percent of Telefonica’s revenue, the company is counting on markets in Spanish-speaking Latin America for expansion as growth slows in Brazil and European markets struggle to recover. Colombian revenue rose 13 percent last year to 1.77 billion euros, data compiled by Bloomberg showed.
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