Telefonica Ever Closer To Selling Its Central American Subsidiary

Telefonica ever closer to selling its Central American subsidiaryJosé María álvarez-Pallete, CEO of Telefonica

The operator may have opted for dividing its assets in the region to facilitate their sale. Specifically, America Movil would be interested in the subsidiaries in El Salvador and Guatemala, and both Millicom and AT&T in the rest (Costa Rica, Nicaragua and Panama).

The valuation of 100% of these assets would have risen from 1/1.1 billion euros to 1.4 billion euros, due to the growing interest in acquiring them. Of this sum, 800 million euros would correspond to the first operation and the remaining 600 million euros to the second.

Telefonica holds 60% in all these subsidiaries except in Costa Rica (100%), and would thus receive around 840 million euros, a price somewhat higher than Renta4’s valuation of these assets at 780 million euros.

On the other hand, Telefonica was also interested in ridding itself of its business in Mexico. However, this operation has been delayed due to the differences about price with the principal candidates, the Cerberus fund and the financial group Advent.

There was speculation months ago about the sale of this subsidiary and that in Mexico. According to Bankinter, disinvestment in the region would be good news:

On the one hand it means the exit from markets where the level of competition and other factors ( for example regulation) obstruct a positive evolution in results. On the other hand, it would help the operator correct its main problem, its indebtedness.

At a moment when the sector faces significant investments to deal with the entry into operation of 5G technology. It should be recalled that the company’s ratio of net financial debt over OIBDA closed 2017 in 3.0X and we estimate it will remain about this level for 2018. On the other hand it would reinforce the sustainability of an attractive and sustainable remuneration policy for shareholders.

The returns per dividend of the shares is just above 5%. In addition, it would decisively distance the fear of a ratings downgrade (currently Baa3/BBB/BBB) which would mean an increase in financing costs.