Telefonica aims for 1.5 billion euros from German sale

MADRID (Reuters) - Telefonica hopes to raise around 1.5 billion euros ($2 billion) by selling shares in its O2-branded German unit on the stock market, barely denting the telecom firm's 58 billion euro debt.

Europe's largest telecoms company by revenue has already said it could sell subsidiaries in Latin America as it tries to cut debt and hang on to its prized investment-grade rating, under pressure from the euro crisis in its Spanish home market.

Telefonica plans to list up to 23.2 percent of its German subsidiary at between 5.25 euros and 6.50 euros per share, the company said on Tuesday, which at the mid-point values the stake at about 1.52 billion euros.

"It doesn't really scratch the surface," said Espirito Santo analyst Will Draper.

"If we add this to the other disposal announced recently, Atento, they still won't get close to their target leverage ratio of 2.35 x EBITDA. Telefonica is going to have to make another significant disposal in the 2 to 3 billion euros range."

Telefonica agreed to sell its Atento call center business to U.S. private equity firm Bain Capital for around 1 billion euros, including debt, last week and sold a stake in China Unicom earlier this year.

Telefonica Deutschland's initial public offering on the German stock market values the whole company around 6.6 billion euros, calculated from the mid-point of the price range.

Draper said the mid-range valuation equated to 5.6 times earnings before interest, taxes, debt and amortization, which was high compared with peers, meaning the company could struggle to achieve that kind of multiple.

In Germany, O2 is the smallest mobile operator with roughly 16.4 percent of subscribers, trailing KPN's E-Plus, Deutsche Telekom and Vodafone.

UNDER PRESSURE

After months of inactivity, the European IPO market has started to show signs of life. British insurer Direct Line and Germany's Talanx are among those whose shares have risen on stock market debuts this month.

But investors are choosy, seeking good growth prospects and attractive valuations. On Monday, Russia's Promsvyabank postponed its plans to list after failing to attract enough demand.

Telefonica Deutschland has attempted to woo investors with the prospect of a 500 million euro dividend next year, contrasting with its parent's decision to cancel its payout for 2012.

Telefonica must raise between 7 billion euros and 8 billion euros a year through 2015 to cover debt repayments and risks rising refinancing costs if its credit ratings are cut.

Ratings agency Standard & Poor's placed Telefonica, currently BBB, on credit watch negative on Friday, citing the firm's exposure to "sovereign-related risks".

Crisis-hit Spain could request financial aid from the euro zone next month, according to currency bloc officials.

Telefonica said it will set the final price for the German listing on October 29, with the shares expected to begin trading on October 30.

The company will offer 225 million shares and a greenshoe, or overallotment, option of 33.75 million shares. The offer period will last from October 17 to October 29.

The offering is being run by JP Morgan And UBS.

($1 = 0.7730 euros)

(Additional reporting by Robert Hetz in Madrid and Kylie MacLellan in London; Editing by Erica Billingham)

Source: http://news.yahoo.com/telefonica-aims-1-5-billion-euros-german-sale-092913019--finance.html

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