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Telefonica Trims China Unicom Hold, Vends Another 1.5%

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According to a recent report by Bloomberg, Spanish telecom behemoth Telefonica SA (TEF - Free Report) sold an additional 1.5% stake in China Unicom Hong Kong Ltd. (CHU - Free Report) for approximately $364 million to raise cash and pay off debt. As per the reports, the company has been continuously facing hurdles in the regular sales of its assets post Britain’s vote to exit the European Union. Notably, the company now retains a stake of hardly 1% in China Unicom.

The Deal             

As per a regulatory filing by Telefonica, the Spanish Telco offered 361.8 million shares (which amounts to 1.5% stake) at prices varying from HK$7.75 to HK$7.80 per share. Notably, The Bank of America Corp. was in charge of the sale of shares, which were much in demand.

Financial Crisis

Telefonica has been in the doldrums for quite some time now which has given rise to the need to raise money and improve its balance sheet. Several analysts are apprehensive about whether the company will be able to reduce its debt levels by the end of the year as its credit rating has already been lowered. Further, Telefonica called off the sale of its O2 unit in the U.K. to 3UK of Hutchison Whampoa after it was stalled by the European Union telecom regulator. The deal was valued at around $14.9 billion. The firm also delayed the initial public offering (IPO) of its Telxius infrastructure unit, which would have fetched €4–€5 billion ($4.5–$5.6 billion). At that time, Telefonica’s debt was at approximately €52.2 billion.

The Bottom Line

Telefonica has lost around 7.9%, after the referendum. However, the company needs to acquire almost 14 billion euros ($15.5 billion) to achieve its target ratio for reported net debt to earnings before interest, taxes, depreciation and amortization of 2.35.

Zacks Rank and Other Stocks to Consider

Telefonica currently has a Zacks Rank #3 (Hold). Investors interested in the telecommunication sector may consider better-ranked stocks such as NTT DOCOMO, Inc. which carries a Zacks Rank #1 (Strong Buy) and AT&T Inc. (T - Free Report) with a Zacks Rank #2 (Buy).

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