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Telefonica could bring in €5 billion from Spanish fibre sale

Telefonica’s at it again – selling assets to pay down debt, if the latest newswire reports prove to be correct.

The Spanish operator is considering offloading a stake in its domestic fibre network and has held talks with advisors about the possibility of spinning out the business, Bloomberg reported, citing unnamed sources familiar with the matter.

Such a move could value the asset at €15 billion, the sources said. How much of that Telefonica would be able to use to reduce its debt pile would, of course, depend on the size of stake it chose to offload. And, with the report adding the usual caveat about there being no certainty it will decide to push forward with the plan – which is being discussed alongside other options for the fibre business – the whole thing could still come to nought.

What we do know at this stage as that any carve-out and sale of the fibre business will not happen quickly, if it happens at all. Bloomberg’s sources said that talks are still in the early stages and management will not be able to negotiate any deal until next year at the earliest, the implication being that it could take even longer. The telco has made no decisions on the timing or size of transaction at this stage, they added.

However, although it did not break the story, Reuters unearthed an additional snippet of information. Its equally anonymous sources said there has been “loads of interest” in the potential sale from funds looking at acquiring a stake of between 15% and 35% in the business. There are five-to-10 serious contenders, they added, looking to pick up a stake, hold it for a few years, and generate a 7%-8% return on investment.

Naturally there has been no official comment from Telefonica.

There’s always the possibility that the newswires’ sources have been misinformed, but this is such an obvious move for Telefonica, given its recent asset-sale activity, that it seems likely there is truth in the report. Reports of strong investor interest are also highly credible, given the recent popularity of infrastructure assets.

Telefonica has been working on debt-reduction for years. As of the end of June its net debt stood at €26.2 billion, down almost 30% year-on-year. Its high-profile towers deals and M&A activity in the UK accounted for the bulk of the decline, but manoeuvres at its fibre businesses played their part too. The maths is not complicated, but it’s worth pointing out that selling a third of a €15 billion asset would bring in €5 billion for the telco.

Telefonica is spinning off fibre assets all over the place. It has formed new fibre companies and brokered deals with investment firms in Colombia, Chile and Brazil this year, as well as announcing a partnership with insurance company Allianz to co-invest in German wholesale fibre business Unsere Grüne Glasfaser a year ago. As well as bringing in money from the spin-off deals, the telco is also able to share the cost of fibre rollout. Win-win.

It could be some time before we find out whether all those deals were essentially a practice run for making a big fibre move in its home market, but it would probably be unwise to bet against it.

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