Spanish telecom behemoth Telefonica SA (TEF - Free Report) plans to file for an initial public offering (IPO) of its infrastructure division Telxius in the second half of 2016.
The company may also consider a share market listing (an IPO) for its U.K. wireless unit O2 or even sell it by the end of this year.
In May 2016, Bloomberg reports stated that Telefonica is mulling over an IPO for Telxius and O2 UK. In the meantime, the company has been grappling with issues such as the Brexit, Britain’s vote to leave the European Union, which delayed the process.
Since May 2016, Telefonica has been in talks with several banks over the Telxius IPO.
Formed in Feb 2016, the division has been set up to manage the company’s infrastructure assets. At present, Telxius oversees about 15,000 wireless towers and an international submarine-cable network covering 31,000 kilometers (19,000 miles).
More assets are likely to be assigned to Telxius over time.
Telefonica aims to raise around €4-€5 billion ($4.5-$5.6 billion) from the Telxius IPO.
The spin-off of an infrastructure unit is not new in the global telecom space. Earlier, America Movil SAB (AMX - Free Report) had spun-off its Telesite infrastructure division and Telecom Italia SpA also followed suit.
The Telxius IPO is of utmost importance to Telefonica after the European Union telecom regulator blocked the proposed sale of its O2 unit in the U.K.
to 3UK of Hutchison Whampoa. The deal was worth around $14.9 billion.
Telefonica’s debt currently stands at approximately €52.2 billion (around $58 billion).
The company had planned to reduce its debt burden through the divestment of its O2 division. However, the plan fell through as the transaction failed to materialize. Telefonica is now reportedly planning an IPO for its O2 division.
As of Jun 30, 2016, total customer access lines of Telefonica were approximately 341.9223 million, down 1.8% year over year.
Beispiel Münster: Wie Vodafone versagt und warum o2 aufholt im LTE-Ausbau
Notably, in the Latin American markets, Telefonica competes with large global telecom operators like AT&T Inc. (T - Free Report) and America Movil.
According to some industry watchers, Telefonica may now be compelled to vend some of its core assets to raise cash and pay-off debt. Otherwise its debt rating may be badly affected.
Nevertheless, management expects free cash flow and operating income before depreciation and amortization to be higher in 2017 than in 2016. At this juncture, proceeds from the Telxius IPO can help Telefonica clear part of its outstanding debt.
Telefonica currently carries a Zacks Rank # 2 (Buy).
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