Telefónica sells China Unicom stake

Telefónica has sold a 4.56 per cent stake in China Unicom for HK$10,963.3 ($1.413bn) in the face of increasing shareholder pressure. The deal leaves the Spanish operator group with a 5.01 stake in the Chinese firm.

The firm sold 1.07 billion shares to Unicom’s parent company China United Network Communications Group Company Limited at a price of HK$10.21 and said that it sold the stake to “proactively manage its asset portfolio”.

Telefónica has agreed not to sell any more shares in China Unicom for the next 12 months and the deal, which is subject to regulatory approval, is expected to be completed by July 31, 2012.

Telefónica has struggled financially in 2012 so far. In its 1Q12 results, it revealed that net income dropped to less than half of what it recorded in the same period of 2011. Although revenue for the quarter grew 0.5 per cent year-on-year to €15.51bn, profit fell 53.9 per cent from €1.62bn to just €748m.

According to Charice Wang, senior analyst at Informa Telecoms and Media, Telefónica is taking a short-sighted approach because, despite China Unicom’s encouraging growth, the Spanish operator simply needs the cash from this sale.

“Telefónica’s first quarter was not very good and it needs the cash,” she explained. “But China Unicom is achieving very good growth at the moment. In terms of 3G subscribers, it is seeing net additions of nearly three million every month.”

She added that Unicom has grown in stature since 2009, when it became the first and only official Chinese operator to provide Apple’s iPhone 3G and 3GS, a position it enjoyed for two years.

However, Emeka Obiodu, senior analyst at Ovum, said that it made sense for Telefónica to sell such an insignificant stake.

“Telefónica needs cash and it is not convinced that it has much to gain from its stake in China Unicom. With the financial difficulties that the company is having, and the difficulties that Spain’s economy is having, it forces global operators to look at their asset portfolio; insignificant stakes in foreign telcos are easy ones to sell and usually the first to go.

“The reality is that there is no long term benefit for Telefónica to keep its stake in China Unicom, the question was only ever going to be when they sell it. There is no long term strategy for Telefónica in China. It has no hope of buying China Unicom outright – politically, it would never be allowed to claim full ownership, and financially, it would not be able to afford it.”

Telefónica’s decision echoes a move made in September 20101 by Vodafone, which made an exit from the market by selling its 3.2 per cent stake in China Mobile for a sizeable $6.5bn return. Obiodu believes Vodafone sold the stake for similar reasons to Telefónica, but said that the value of the deals are very difficult to compare, as China Mobile is a much larger operator than China Unicom.

Telefónica and China Unicom will continue to cooperate in areas such as MNCs, international business, procurement, roaming and technology, while “exploring new opportunities to work together in the digital world,” Telefónica said in a statement.

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