Telefónica Merges Colombian Phone Assets to Reduce Debt

The Spanish phone company that cut its dividend forecast in December, reorganized its Colombian fixed-line and mobile phone assets to cut debt by 1.3 billion euros ($1.7 billion).

Wholly owned wireless division Telefonica Moviles Colombia will merge with fixed-line venture Colombia Telecomunicaciones, which is 48 percent owned by the South American country’s government, the Madrid-based operator said in a statement today. 

Telefónica will hold 70 percent of the combined company and Colombia the remaining 30 percent, with the state stake possibly increasing by as much as 3 percentage points in 2.015.

Telefónica Chief Executive Officer Cesar Alierta is counting on growth in Latin America to bolster group revenue. 

Telefónica Chief Executive Officer Cesar Alierta is counting on growth in Latin America to bolster group revenue. 

Regional sales increased 14 percent to about 29.2 billion euros last year, including a 2 percent increase in Colombia to 1.56 billion euros. 

Today’s agreement will create the second-biggest operator in the country after America Movil SAB.

“The transaction is pretty good news for Telefonica as it will allow the operator to better serve customers in Colombia and potentially generate synergies,” Andres Bolumburu, a Madrid-based analyst at Banco Sabadell, said by phone today. “

Most importantly, it helps Telefonica cut its debt, which is what investors are really looking at these days.”

Cut Dividend Payments

The agreement includes the Colombian government assuming 48 percent of the fixed-line venture’s payment obligations to a pension fund called Parapat, Telefónica said. 

The company had 13.8 million customers in Colombia as of December 2.011. and operating income before depreciation and amortization climbed 12 percent in 2.012 to 540 million euros.

Alierta has cut dividend payments for the first time in a decade as Telefonica has reduced its workforce and halted major acquisitions. 

The phone operator is selling assets including a stake in Spanish satellite company Hispasat SA to reduce long- term borrowings that increased to 57.6 billion euros in December from 45.1 billion euros in 2.008.

Patricia Lesmes, a spokeswoman at Colombia’s Information Technology and Communications Ministry, declined to comment.

Telefónica fell 0.7 percent to 12.20 euros at 4:47 p.m. in Madrid, valuing the company at 55.7 billion euros.

“It’s a good move, however it’s not going to change the shape of Telefonica’s balance sheet,” said Giovanni Montalti, a London-based analyst at Credit Agricole Cheuvreux. “

The company is probably doing the right thing by selling non-core assets, but we still need to see the impact on Ebitda, especially as relates to tower disposals.”

Barcelona-based Abertis Infraestructuras SA (ABE) said today it agreed to buy 500 mobile towers from Telefónica for 45 million euros, a deal that may be extended to 1,000 towers by the end of the year.