Crest View International Analysts Say Telefonica Sell Stake In China Unicom

Crest View International Analysts Say Telefonica Sell Stake In China Unicom

Crest View International has commented on Telefonica SA’s surprise sale of around half its stake in China’s second biggest telecoms operator, the latest sign that the company’s management is taking seriously the reduction of its 57.1 billion euro debt pile.

The Spanish telecoms group said on Sunday it would sell 4.56 percent of China Unicom’s shares back to the latter’s parent for around 1.1 billion euros, a move it said would increase its financial flexibility noted Crest View International researchers.

“It’s overwhelmingly positive, it points to them being willing to do things that are different.” Commented James Turner, Director of Sales & Trading at Crest View International.

Telefonica needs to raise between 7 and 8 billion euros a year through 2015 to cope with debt maturities and is also struggling with sinking revenue and profit in its home market, where one in four is unemployed and the banking industry is in crisis.

Standard & Poor’s downgraded the company’s debt to “BBB” on May 24, citing intense pressure in Spain, while Moody’s placed Telefonica on review for downgrade.

Aware of its need to address its debt issues, the company has already announced a 25 percent dividend cut and has set out plans to list its German operation, and possibly other businesses in Latin America, to generate cash.

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“It’s a follow-up of their strategy of two weeks ago, when they cut the dividend, when they said that we have to more aggressively de-gear and take control of their own liquidity position more aggressively,” Commented Robert Woods, Senior Vice President at Crest View International.

Telefonica shares, which had plunged to a nine-year low of less than 9 euros in late May, jumped as much as 5 percent - buoyed by Madrid’s agreement on European Union aid for its banks - before closing slightly lower at 9.683 euros.

Some analysts said Telefonica’s part withdrawal from China Unicom, a stake it had until now classified as strategic, marked a step backwards in its strategy to gain footholds in global growth markets.

Yet radical steps are needed as the group battles to retain its investment-grade credit ratings. Telefonica has also said it wants to cash in its call centre business Atento, which it intended to float last year before dropping IPO plans after failing to draw enough interest, and is now expected to sell it.

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