Telefónica is trying to attract investors with high dividend payouts to its planned IPO of its O2 Germany subsidiary.
The Spanish telco is considering paying about €500 million in dividends next year with a payout ratio of more than 90 per cent of the local unit's net income, two insiders told Bloomberg, asking not to be identified as the plans have yet to be made public.
Luis Benguerel, a trader at Interbrokers in Barcelona, warns: "Unless Telefonica is willing to pay a huge dividend to investors, combined with a low valuation, it seriously risks its possibilities of a successful IPO in Germany," according to Bloomberg.
The company, which has €58 billion in debt, may offer a 20 per cent stake in O2 Germany for between €1 billion to €1.5 billion. That money will be used to reduce debt and expand the financial flexibility of the group, according to the Spanish newspaper Cinco Dias.
The company is reported to have accelerated its discussion and presentation to potential investors with the intention of floating O2 Germany by the end of next month.
Telefónica says that its German mobile subsidiary is performing well having increased its customer base by 5 per cent in the first six months of 2012 to 25.2 million, compared with the same period last year. The company boosted revenues by 4.7 per cent between January and June 2012 to €2,554 million, with profits up 12.5 per cent to €628 million, according to Cinco Dias.
Separately, Telefónica says it aims to have one million subscribers to its Movistar Fusion quad-play service by the end of this year. According to Cinco Dias, the company wants to attract 50 per cent of Fusion customers from outside of its subscriber base following its launch Oct. 1. Already, 25,000 Telefónica customers have registered to receive the service which carries a monthly tariff of €49.99 to €89.99.
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