Telefónica taps Chinese banks for $1.2B credit facility

Spain's debt-laden Telefónica has secured a $1.2 billion (€915.5 million) credit line with two Chinese banks, China Development Bank and Industrial and Commercial Bank of China. 

The operator said the 10-year credit line will be used to buy products and solutions by the Telefónica Group worldwide. This new credit facility is the second tranche of vendor financing Telefónica announced in January. According to company, the January deal was the first publicly-announced vendor financing granted by CDB to a Spanish company.

Telefónica has announced drastic cost-cutting measures in recent months to reduce debt and hang on to its investment-grade credit rating. In July, Telefónica scrapped dividends and share buy-backs 2012. Salaries and bonuses for Telefónica's top executives were chopped by nearly a third. Dividends will resume in 2013, but at €0.75 per share, half the rate set previously.

A combination of Spain's weakening economy and Telefónica's growing net financial debt--at €57 billion as of June 30, up €2 billion from six months previously--has forced operator's hand. Spain's biggest operator needs to raise between €7 billion and €8 billion a year to meet debt maturities through to 2015. The cost-cutting measures will save around €10 billion and ensure all debt maturities are covered until the end of 2013.

If all goes according to plan, credit ratings agencies will start to view the company more favorably. Under pressure from some agencies, Telefónica cut its dividend from €1.75 per share to €1.50 at the end of 2011. The move was not enough to satisfy Standard & Poor's, which lowered Telefónica's long-term debt rating by one notch, to BBB, in May. The following month, Moody's lowered the Spanish firm's debt by one level to Baa2. Both ratings are perilously close to non-investment-grade status.

Separately, an unnamed financial source told Reuters that Telefónica is seeking to list between 10 and 20 per cent of its O2 Germany unit, a business which the operator has valued at €10 billion. 

So far this year, Telefónica said it has secured €9.2 billion in financing, including €3.3 billion in bond sales. Another €300 million has been raised in private placements.

For more:
- see this Telefónica press release
- see this Dow Jones Newswires article
- see this Reuters article

Related Articles:
Report: Telefónica ready to spend €1.5B on UK LTE auction
Telefónica may restructure to reduce €57 billion in debt
Telefónica drops separate Spanish unit in bid for growth
Telefónica Spain struggles with churn as market share drops
Telefónica, Vodafone hit hard as Spanish customers cancel contracts

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