Spain cites national security as it ups Telefonica stake

Specifically, it is keen to keep the influence of Saudi Telecom Company (STC) in check, and in increasing its holding in Telefonica it has now become the operator's largest single shareholder with a holding of 5.034%, according to securities market regulator the CNMV.

The state is acting through national investment company Sociedad Estatal de Participaciones Industriales (SEPI), which announced on Monday that it has once again raised its stake in Telefonica. The move comes just three weeks after it issued a similar statement announcing it had reached the 3% mark and forms part of a scheme unveiled at the back end of last year, when Spain revealed it would acquire as much as 10% of the incumbent telecoms operator.

It has repeated its rationale a number of times: national security.

"SEPI's participation provides greater shareholder stability to the company to achieve its objectives and contributes to the protection of the strategic capabilities of a key company in the telecommunications sector and a determining factor in most of the industrial capabilities and areas of knowledge that affect the essential interests of defence and national security," SEPI said in a Spanish language statement.

Naturally, official comments from the state are all very vague. But there's no question that Spain's sudden interest in buying into its major telecoms operator is linked to the arrival of STC as a shareholder.

STC, which is majority owned by the Saudi Arabian state, announced in September that it would spend €2.1 billion to acquire 9.9% of Telefonica. It currently holds 4.9% of the telco's shares, plus another 5% in derivatives that it could convert into voting shares, although it would need the approval of the Spanish government to do that.

Given that STC's announcement initially threw the government into disarray and then triggered the state's decision to start buying up Telefonica shares of its own, one can assume that STC would not necessarily find it easy to get the go-ahead for such a move. It has not yet asked the question though.

That said, Spain is clearly making an effort to stay one step ahead; it still plans to pick up a 10% stake of its own, as SEPI reiterated this week. Its statement implied that it is buying up the shares slowly in order to minimise any impact on the telco's stock price.

SEPI is Telefonica's largest shareholder only by the finest of margins; it is not the only Spanish entity to have increased its stake in the telco recently.

Just last week Spain's CriteriaCaixa, the holding company for CaixaBank, increased its stake in Telefonica to 5.007%, up from 2.69%.

In an accompanying statement the firm highlighted the financial benefits of being a long-term Telefonica shareholder, noting that it focuses on investing in "companies with an attractive dividend policy, such as Telefónica, to finance 'la Caixa' Foundation social action." It added that it received €42 million in dividends from Telefonica last year.

But there is a hint of keeping Telefonica in Spanish hands too.

"For CriteriaCaixa, the first investment holding company in Spain, the stake in Telefonica is strategic and long-term," the company said. "In this sense, its main goal is to provide the highest shareholder stability to the telecommunications operator, an essential company both for the country and for the industry at an international level."

The Spanish are clearly keen to retain control of their telecoms incumbent, no matter how attractive it is starting to look to overseas investors.