Telefónica has made its latest move to monetise some in-demand assets, this time spinning off its Chilean fibre network business and selling a 60% stake to investment group KKR.
The deal values the business at US$1 billion and will enable Telefónica to reduce its debt by around $400 million, which is key to the Spanish company’s strategy at present. Its net financial debt, not including lease liabilities, stood at €36.7 billion at the end of September, down by just over €2 billion from the end of 2019, but its debt-to-earnings ratio was slightly higher at 2.77x. It will publish full-year figures later this week.
Telefónica has offloaded non-core assets in Central America in recent times as part of its debt-reduction effort, as well as brokering various deals for its towers assets, including selling 40% of towers business Telxius to KKR in 2017 before agreeing to sell the business to passive infrastructure specialist American Tower for €7.7 billion just last month.
One cannot help but wonder whether KKR is looking for a similar result this time.
In the meantime though, Telefónica is talking up the benefits of the deal when it comes to fibre rollout in Chile.
“The transaction will allow us to accelerate the deployment of our networks through an efficient capital structure, at the same time as allowing us to crystallize the value of our assets and monetize a part of them,” said Laura Abasolo, Chief Finance and Control Officer (CFCO) at Telefónica, in a Spanish language statement.
Meanwhile, Telefónica Hispanoamérica chief executive Alfonso Gómez Palacio added that the deal underscores the value of Telefónica’s infrastructure in Chile and its willingness to continue developing its fibre network there.
“We have witnessed booming business activity over the past 12 months, and this transaction will further support this momentum as we will be able to accelerate the deployment of fibre optics, which have become more necessary than ever,” he said. “Our participation in InfraCo provides us with substantial long-term flexibility in a market with enormous future potential.”
InfraCo is the name Telefónica has given to its Chilean fibre asset.
InfraCo will launch with 2 million homes passed and plans to extend that to 3.5 million by 2022, which represents more than half of Chile’s household’s, Telefónica said.
It expects the deal to close in the first half of this year, pending the approval of the competition authorities.
Although Telefónica is making all the right noises about its growth plans in Chile, its future in the market is far from certain. There have been countless rumours that it intends to pull back almost entirely from Latin America, with the exception of its Brazilian business, which it is bulking up through the acquisition of some of rival Oi’s assets.
The monetisation of those Chilean infrastructure assets – and the welcome deleveraging potential the deal offers – could be a precursor to a bigger announcement in the market in the coming months or years.