STC accepts concessions to raise Telefonica stake to 9.9%

The authorisation came following "an exhaustive analysis by the Spanish authorities" that looked at compliance with national law, as well as national security interests and the strategic nature of telecommunications infrastructure, Spain's Minister for Economy, Trade and Business Carlos Cuerpo Caballero said on Thursday, according to El Pais.

Saudi Telecom, or STC, has accepted conditions set out by the state to safeguard both national interests and critical infrastructure, the paper quoted Cuerpo as saying, without elaborating on exactly what those concessions might look like.

The move has been a while coming. STC announced as long ago as September last year that it planned to spend €2.1 billion to acquire a 9.9% stake in Telefonica. It was able to pick up 4.9% of the telco's shares and held another 5% in derivatives convertible into voting shares, subject to permission from the Spanish government. It has now secured that permission, which was far from being a rubber stamp.

The idea of a Saudi company buying into Spain's national incumbent set tongues a-wagging from the get-go. The Spanish state made it quite clear that it would not simply let the deal go ahead, but at the same time, it was reluctant to make any move to block investment in the country. After a couple of months of debate it unveiled a plan to buy a 10% stake of its own in Telefonica, essentially giving it a marginally bigger holding than STC.

By April it had built a stake of just over 5% through national investment vehicle Sociedad Estatal de Participaciones Industriales (SEPI) and a month later had secured the 10%. That presumably opened the way for a serious conversation about STC's derivatives.

Or rather, several. The authorisation process included securing the green light from Spain's Board of Foreign Investments (Jinvex) as well as from the Council of Ministers, El Pais reported.

The paper added that the resulting change in Telefonica's capital structure will likely also be reflected in its board of directors. SEPI recently requested a board seat and STC will have the same right, it explained. There is nothing in the government's approval conditions that prevents STC holding a board seat, so the likelihood is it will make such a request.

Cuerpo didn't have any real comment to make on that element of the transaction. Instead, he pointed to the advantages of Telefonica's new shareholder structure, which he claims will enable it to grow both in terms of the adoption of new technology and also geographically, pointing to opportunities in the Middle East in particular. "This is an excellent window of opportunity," he said.

He was similarly cagey when answering the question that is on everyone's lips: whether or not the state will now look to further build its stake in Telefonica.

"It is too early to talk about taking an additional position," he said. "Telefónica is at an optimal moment and we must look ahead to continue investing in a sector that we believe will be strategic."

Make of that what you will.