Telefónica has informed the Stock Market Regulator (CNMV) that it has reached an agreement with the Colombian government to hike capital for a total of €1.840 billion at its affiliate operating in the country. The Colombian government owns 32.5% of the company, with the remaining 67.5% in the hands of the Spanish telco. The reason for the capital increase is the debt the affiliate has with the company which manages the pension funds. This debt rose due to the peso’s devaluation, leaving Telefonica’s affiliate with negative assets and in the process of being wound up.
The capital hike has two phases:
1) one for a total of €1.370 billion (925 million from Telefónica) in order to cancel in advance the obligations to Parapat (the pensions fund manager). The total figure represents 2.7% of the Telefonica Group’s market capitalisation.
2) A capital increase worth € 470 million (320 million from Telefónica) to pay for an arbitral award ruled on by a court in Colombia.
In this way, Telefonica is showing its commitment to its Colombian subsidiary. But that doesn’t mean it accepts the sentence imposed by the award, reserving the right to take legal action.
As far as the impact on its debt is concerned, Telefonica has said this will only amount to €40 million (0.1% of the net debt at end-first quarter 2017). This is because 100% of the obligations with Parapat, unadjusted, was already consolidated on Telefonica’s balance sheet.
The bail-out means that the problems faced by the Colombian affiliate, which is one of the main ones in the Telefonica group, are now over.
Renta 4 analysts reiterate their Overweight recommendation, with a target price of 11,4 euros.