Telefonica’s Telxius IPO Said to Face Doubts on Unit’s Value

  • Doubts over underwater cable business may affect valuation
  • Investors willing to pay higher valuation for tower assets

Telefonica SA is facing investor concern about the value of its Telxius infrastructure unit ahead of an initial public offering because of doubts about how to assess the division’s submarine cable assets, according to people with knowledge of the matter.

Potential shareholders want to put a price on Telxius’s submarine cable assets, which make up most of the business, that’s about half the multiple they’re willing to pay for the unit’s wireless towers, said the people, who asked not to be identified because the deliberations are private. Telefonica may announce the price range for Telxius as soon as this week, two of the people said.

Investors’ concerns stem from a lack of similar companies to compare to Telxius, the people said. Cellnex Telecom SA and Italy’s Infrastrutture Wireless Italiane SpA, which held IPOs last year, are pure-play tower businesses. Telxius will also be one of the first major tests of appetite for new share listings since the U.K.’s decision to leave the European Union roiled stock markets this summer.

Telefonica said it plans to list shares in Telxius by the end of the year as the Spanish phone company looks for ways to pay down debt. The business is expected to attract interest from large infrastructure funds and may be worth about 3.5 billion euros ($3.9 billion), the people said. A significant amount of the company’s profits will likely be paid out as dividends, they said.

The undersea business -- which carries telecommunications traffic between countries, including an underwater cable that connects the U.S. with Central and South America -- make up about 60 percent of Telxius’s revenue and earnings before interest, taxes, depreciation and amortization, according to the people.

Telefonica’s continued ownership of Telxius may also discourage competitors such as Vodafone Group Plc or Orange SA from renting out Telxius’s towers, hurting the business’s growth, the people said.

A spokesman for Telefonica declined to comment.

Telefonica Chief Executive Officer Jose Maria Alvarez-Pallete is counting on the share sale of Telxius to help reduce the company’s net financial debt, which grew to 52.6 billion euros at the end of June, up by about 2 billion euros from March 31.

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