As per a recent report by Bloomberg, Spanish telecom giant Telefonica SA (NYSE:TEF) is said to have got its act together to sketch out an Initial Public Offering (IPO) of its infrastructure division, Telxius, by September this year. It was since May 2016 that Telefonica was in talks with several banks to conduct an IPO of Telxius. Notably, in June, Telefonica reportedly postponed its planned Telxius IPO and the possible IPO of its U.K. wireless unit O2 because of Brexit.
To recall, Telxius was formed in Feb 2016 after a spin-off from Telefonica as a infrastructure division and vested the task of managing the company’s infrastructure assets. The spin-off of an infrastructure unit is not new in the global telecom space. Before this, America Movil SAB (NYSE:AMX) had spun off its Telesite infrastructure division; and then, Telecom Italia SpA (NYSE:TI) had also opted for the same.
At present, Telxius manages 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.
Reason for the IPO
The IPO is aimed at raising funds to the tune of EUR 1.5 billion ($1.66 Billion) to cut the high debt level of Telefonica. Telefonica exited the second quarter of 2016 with total debt of about €63,712 million (about $70,720 million), up from €49,921 million ($55,412 million) recorded at the end of 2015. Telefonica ended the reported quarter with cash and cash equivalents of €2884 million (around $3,200 million) compared with €5,570 million (around $6,182 million) at 2015-end. This accumulating debt and decreasing cash flows may pose problems for its credit ratings going ahead. The company was planning to reduce its debt burden after divesting its O2 division. However, the plan fell through as the transaction failed to materialize. Recently, Liberty Global Plc. (NASDAQ:LBTYA) has shown interest in acquiring O2 but nothing concrete has emerged as of now.
Telefonica currently sports a Zacks Rank #2 (Buy)
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