Telefonica receives pitches for Spanish fiberco – sources

12 January 2021

  • Telefonica could seek minority investor for Spanish fiberco in future
  • Ongoing deals in UK, Brazil, and carve-outs are current priorities  

Telefonica is receiving pitches from bankers to seek a financial investor for its domestic fiber business, said three sources familiar with the situation. 

 

Telefonica has been reducing its debt. At the end of September, its net debt stood at EUR 36.7bn, with liquidity of EUR 22.4bn and maturities for 2020-2022 reduced to EUR 1.9bn.  

 

Deleveraging is still a strategic goal for Telefonica, but the company is actively pursuing opportunities in other areas first, said the first source familiar with the situation. However, selling a minority stake in a fiberco to an infrastructure or pension fund could make sense in the future, this source said.  

 

The Spanish telecoms incumbent already offers fiber to the home (FTTH) to 24.4m homes and offices in its home market, it said in its third-quarter results. It also describes itself as a FTTH leader in Brazil, one of its four core markets.   

 

Telefonica is starting to think about fiberco opportunities, and there is some debate internally, said a second source familiar with the situation. Telefonica is watching its peers closely, this source said, adding that no decisions are expected imminently.

  

At the moment, creating a large fiberco is a lower priority than other corporate deals although it would make sense for Telefonica if it is looking to raise capital in the future, said a third source familiar with the situation.  

 

The company is receiving lots of pitches, but has yet to take any decisions, agreed a fourth source. The process remains speculative at the moment, said a sector banker. Completion of fibre transactions in Europe, including Telefonica’s joint-venture (JV) with Allianz  to deploy FTTH in Germany, could be fuelling rumours among investors, this banker added.   

 

Telefonica currently has its hands full with two large ongoing deals, said the first source. The company is merging its O2 unit in the UK with Virgin Mobile, in a deal that is undergoing a Phase II competition review. Meanwhile, Telefonica Brasil  is part of a consortium that submitted a winning bid for Oi’s mobile unit after the Brazilian vendor entered bankruptcy proceedings.   

 

The company is also seeking to change its corporate structure with carve-outs. This is the next priority for Telefonica after the acquisitions, the first source said.    

 

In November 2019, Telefonica said it would carve out its Latin American business outside Brazil, with units in Argentina, Chile, Colombia, Ecuador, Mexico, Peru, Uruguay, Venezuela and various Central American countries. At the same time, the company announced the creation of Telefonica infra and Telefonica Tech.   

 

In recent months, Telefonica has appointed Societe Generale to help explore options for its submarine cable unit, which is part of Telefonica Infra; postponed the entry of a partner into Telefonica Tech; and entered talks to sell its Chilean business, as reported.   

 

Telefonica has already been active with fiber deals in some markets. As well as its FTTH JV in Germany, it has looked to create fibercos in Peru and Brazil, as reported.   

 

A spokesperson for Telefonica declined to comment.   

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