Telefónica cuts stake in Telecom Italia through bond sale

As had been widely anticipated, Telefónica initiated measures that will ultimately reduce its stake in Telecom Italia from almost 15 per cent to around 9 per cent once the Telco shareholder pact has been dissolved.

In a regulatory filing this week, the Spanish operator said it has sold €750 million ($1 billion) of convertible bonds that will mature on July 24.

The bonds will be exchangeable for as much as 6.5 per cent of Telecom Italia's shares, and once exchanged Telefónica's holding in the Italian operator will fall to within a range of 8.3 per cent and 9.4 per cent, according to the filing. The bonds will carry a fixed annual interest rate of 6 per cent.

"With this transaction, Telefónica will cut its indirect stake in Telecom Italia to levels below those it had prior to Telco SpA's recapitalization in September 2013," the Spanish operator said. Telefónica added that the sale also allows it "to pre-emptively neutralise" around half of the net debt increase that would eventually follow Telco's demerger.

The move by the Madrid-based operator comes hot on the heels of speculation that Telefónica had been in talks on the sale of its stake in Telecom Italia in an effort to relieve regulatory pressure in Brazil.

Telefónica, which owns Brazilian mobile market leader Vivo, competes with Telecom Italia's unit TIM Brasil and came under pressure from Brazilian regulator Cade when it boosted its investment in Telecom Italia shareholder vehicle Telco last year. Cade has ordered Telefónica to either sell its shares in Telecom Italia or dispose of Vivo.

Telco's directors and shareholders recently approved requests from Italian investors Generali, Mediobanca and Intesa Sanpaolo to dissolve the Telco shareholder pact that has existed since 2007. Once the pact is dissolved, Telefónica would become the largest single shareholder in Telecom Italia with a 14.77 per cent stake.

As things stand, Telco owns 22.4 per cent of Telecom Italia. Telefónica in turn owns around 66 per cent of Telco, and 46.18 per cent of the voting rights. Intesa Sanpaolo and Mediobanca each currently hold a 7.3 per cent shareholding and 11.62 per cent of the voting rights, while Generali owns around 19.3 per cent of Telco and 30.58 per cent of the voting rights.

The completion of the Telco demerger is subject to approval by Brazilian, Argentine and Italian regulatory authorities.

For more:
- see the Telefónica filing (not available in some regions)

Related Articles:
Report: Telefónica in talks to sell Telecom Italia stake
Telecom Italia shareholder Telco approves break-up, makes €830M writedown
Telefónica to be largest investor in Telecom Italia
Telecom Italia hit by domestic price war in Q1, but sees recovery ahead
Telecom Italia confirms Patuano as CEO, appoints Recchi as chairman

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