Telefonica May List Mexican Unit to Help Fund O2 Regulatory Costs

By David Roman

BARCELONA--Telefonica SA [TEF] may list its Mexican unit to raise funds in case regulatory hurdles prove too steep to complete the planned sale of its U.K. unit O2, a top company official said Wednesday.

The Spanish telecommunications company considers the Mexican unit--now in a phase of growth after years of stagnation--as "absolutely" core to the company, Chief Financial Officer Angel Vila said at a business event here.

However, he added that an initial public offering of part of the unit would be one of several options in case the agreed $14 billion sale of O2 to rival CK Hutchison Holdings Ltd is axed by Europe's top antitrust regulator.

"We're growing very nicely in Mexico. We think it's a business that could be attractive, even for an IPO," Mr. Vila said.

Last week, Telefonica officials said they remained confident that the European Commission would approve the deal, days after it started a full-blown probe. Market observers, meanwhile, have expressed concern about the deal getting through.

This is because U.K. market regulator Ofcom has been vocal with its criticism of it, and because the European Commission--the European Union's executive arm--itself has vowed to take a harder stance against in-market consolidation than in recent years.

The commission is now looking into whether the sale of O2, which would create the largest mobile operator in the U.K., may potentially lead to higher prices and less choice for customers.

For Telefonica, completing the sale of O2 is a fundamental part of a strategy focused on cutting debt, while maintaining a strong dividend policy that is a top draw for institutional investors such as pension and investment funds. Telefonica's net debt, which peaked at 56.3 billion euros ($60.4 billion) in 2011, has dropped slowly and stood at EUR49.7 billion as of Sept. 30.

The commission has until March 16 next year to investigate the proposed acquisition and to decide whether to approve it, or ask the companies for concessions.

Telefonica last week said that it was considering alternate options to raise funds in case the sale is cancelled, including the sale of other assets like telephony towers.

Write to David Roman at [e-mail]

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November 11, 2015 13:14 ET (18:14 GMT)

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