Telefonica Falls After $1.3 Billion Sale of Treasury Shares
Telefonica SA (TEF), taking advantage of an 18 percent increase by its shares in the past month, raised about 975 million euros ($1.3 billion) after selling treasury stock to reduce the Spanish carrier’s debt.
Goldman Sachs Group Inc. (GS) helped Telefonica sell all its 90.1 million treasury shares, or a stake of just less than 2 percent, at 10.80 euros apiece, the Madrid-based company said today. Telefonica shares fell 5 percent to close at 10.68 euros on the Madrid exchange, the steepest decline since August.
With pressure from credit rating companies easing after asset disposals last year including a stake in its German unit, Telefonica has halted plans for an initial public offering of its Latin American business. Still, with 51.3 billion euros in net debt -- more than its market value -- Telefonica remains Europe’s most indebted phone company.
“It’s a pretty good deal,” said Andres Bolumburu, a Madrid-based analyst at Banco de Sabadell. “As stock markets rattle due to new European concerns triggered by the crisis in Cyprus, Telefonica decided to sell now and reap gains obtained earlier this year.”
In addition to the sale proceeds, Telefonica may also post a net capital gain of as much as 70 million euros, said Borja Mijangos, a Madrid-based analyst at Interdin Bolsa. The company didn’t disclose whether it will book a gain.
“The transaction will allow the company to substantially reduce debt,” Mijangos said. “Still, the company will need to continue reducing its leverage.”
The cost of insuring the company’s bonds using credit- default swaps rose 0.9 percent to 234 basis points, which compares with a record high of 573 basis points in June last year, according to data compiled by Bloomberg.
The derivatives pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A basis point on a contract protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.
After having spent $85 billion in acquisitions since taking over in 2000, Chief Executive Officer Cesar Alierta had to cancel dividend payments last year to save about 10 billion euros as pressure from credit rating companies rose. Telefonica sold its call-center Atento, part of its China Unicom (Hong Kong) Ltd. stake and shares in its German business. The phone company also announced plans to swap 2 billion euros in preferred shares for bonds and treasury stock.
Telefonica, seeking to reduce net debt by more than 4 billion euros this year, is following companies such as Repsol SA (REP), Spain’s biggest oil company, and builder Actividades de Construccion & Servicios SA, to sell treasury shares.
Alierta said in February he wants to cut Telefonica’s net debt to “comfortably” below 2.35 times operating income before depreciation and amortization this year, from 2.36 times at the end of 2012.
Telefonica plans to sell non-core assets such as mobile- phone towers. Abertis Infraestructuras SA (ABE), whose businesses expand from toll-roads to airports and telecommunications, said last month it’s in talks with Telefonica, Vodafone Group Plc (VOD) and France Telecom SA (FTE)’s Orange to buy more than 1,000 mobile-phone towers mostly in Europe.
Separately, Telefonica reached an agreement with unions today to extend a collective bargaining agreement that will prevent workers from further layoffs. The pact includes a 1 percent salary raise for each of 2013 and 2014, Jose Luis Paniagua, a spokesman at the UGT union, said in a telephone interview.
Telefonica won’t contribute to part of the pension plan for the unit’s more than 20,000 employees in Spain for a period of 15 months, a measure that will help the company achieve about 80 million euros in savings, he said.
To contact the reporter on this story: Manuel Baigorri in Madrid at email@example.com