It’s definitely not Telefónica finest hour. Problems with the possible listing of its UK affiliate O2 after the pound’s slump can be added to the fiasco with the IPO of its infrastructure subsidiary Telxius. The company is worried about having its rating cut and it doesn’t know how it can cut its massive 52 billion euros debt pile…except for issuing bonds, an activity where it has not been thwarted at least for the time being.
On Monday, Spain’s leading telecommunications company returned to the debt market with a 4-year and a 15-year bond issue. According to Bloomberg, the 4-year debt issuance was worth around 1.250 billion euros, while some 750 million euros of 15-year bonds were issued. Demand was over 4 billion euros.
The price initially considered for the 4-year bonds was around 55 basis points above the benchmark for fixed income issuances. The market’s good response has allowed this price to be reduced to 45 basis points.
In the case of the 15-year issuance, the price considered was around 120 basis points above mid-swap. This cost was lowered to 115 basis points thanks to the demand registered. Telefonica has returned to the debt market one month after successfully issuing hybrid bonds. On that occasion, it placed 1 billion euros at a yield of 3.75%.
The good response to the bond issuances contrasts with the bad performance of the stock price since the Telxius fiasco. This has again dropped below 9 euros over the last few sessions. In the year to date, Telefónica shares have lost over 13%, more than the average for the Ibex 35 blue chip index.
The figures don’t add up for investors. Analysts maintain that it isn’t possible to keep paying dividends and making the necessary investments if it doesn’t get cash from the O2 IPO. The company plans to list 30% of its UK affiliate, with a value estimated at around 3 billion pounds. At current exchange rates, Telefónica would receive some 3.3 billion euros. If the operation had been carried out at the beginning of the year, the Spanish teleco would have obtained 4 billion euros. Brexit has swallowed up 700 million euros in just a few months.
