Telefonica Sells Stake in Central America Assets to Cut Debt

Telefonica SA, Spain’s largest phone company, agreed to sell a 40 percent stake in its Central American assets to closely held Corporacion Multi Inversiones to raise $500 million to pare debt.

As part of the agreement, Telefonica will create a new company to hold the businesses in Guatemala, El Salvador, Nicaragua and Panama, the Madrid-based company said in a statement today. The transaction implies a valuation of 6.5 times earnings before interest, taxes, depreciation and amortization, based on 2012 figures, it said.

It’s “positive for the company as it helps to reduce debt by selling those assets at a higher-than-expected valuation,” said Andres Bolumburu, an analyst at Banco de Sabadell SA in Madrid. “Still, it’s a small deal with a limited impact.”

After an $85 billion acquisition spree over a decade increased debt and triggered rating cuts, Chief Executive Officer Cesar Alierta last year began selling assets and has suspended dividend payments. As pressure from rating companies eased following the sale of a stake in its German business, Telefonica has halted plans for an initial public offering of its Latin American business, which generated about half of the company’s 62.4 billion euros ($81.6 billion) in sales last year.

Telefonica shares were little changed, trading at 11.16 euros at 9:26 a.m. in Madrid, valuing the company at 50.8 billion euros.

Other Sales

Telefonica also plans to sell part of its 70 percent holding in the Colombian division in an IPO as early as this year, people familiar with the matter said this month. The phone carrier is considering sale options in Europe that range from fixed-line operations in Germany to its assets in Ireland, according to people familiar with the plans.

The Central American deal involves a variable payment of as much as $72 million depending on future development of the assets, the company said. Telefonica, which also operates in Costa Rica, entered the region in 1998 during the privatization of the telecommunications sector in El Salvador.

Telefonica offers services such as fixed telephone, broadband and mobile in Central America. Last year’s revenue climbed 24 percent to 672 million euros while operating income before depreciation and amortization fell 15 percent to 140 million euros. The Oibda margin shrank to 20.9 percent from 30.5 percent a year earlier.

Corporacion Multi Inversiones, a family-owned company founded in 1920 in Guatemala, operates in 19 countries in three continents, according to today’s statement. Its assets range from fast-food restaurants and real estate to renewable energy and finance, according to its website.

Before it's here, it's on the Bloomberg Terminal.