Telefonica has announced its intention to sell EUR 750 million of bonds that can be exchanged for Telecom Italia shares, the first time it has showed a willingness to cut its stake in the incumbent Italian operator. In a statement to Spain's market regulator CNMV, Telefonica said the bonds will carry a fixed annual interest rate of between 5.25 percent and 6 percent and would mature in three years. However, they could be converted at any time before that or paid in cash if certain conditions are met. The mandatory exchangeable bond is a way for Telefonica to reduce its near 15 percent stake in Telecom Italia by about 5 percent, according to unnamed sources close to the transaction cited by Reuters. "This is a way for Telefonica to sell part of its stake in Telecom Italia while ensuring against downside risk if the shares lose value in the next three years," said one of the sources, with another adding that the exchangeable bond "is invariably going to lead people to ask what Telefonica plans to do with the rest of its stake in Telecom Italia."
Telefonica’s bond sale comes after the company lost an appeal last month against the ultimatum issued by Brazil's anti-trust regulator (Cade) to scale back its influence in the Brazilian telecoms sector. In December Cade ordered Telefonica to either sell its interest in TIM Participacoes (Tim Brasil), the local unit of Telecom Italia, or find a new partner for its own Vivo unit. Telefonica has a timeframe of 18 months in which to comply with Cade’s ruling. At the same time, the Telco SpA holding that Telefonica formed with three Italian companies – Assicurazioni Generali, Mediobanca and Intesa Sanpaolo – is to break up after the Italian partners confirmed they are leaving the pact that controls Telecom Italia via a 22.4 percent stake. Once Telco disbands, Telefonica will remain the largest shareholder in Telecom Italia, with a direct stake of 14.77 percent, while Generali will have 4.3 percent and Mediobanca and Intesa Sanpaolo 1.6 percent each.
