Telefonica Down On Reported Delays In Telxius & O2 IPOs

Spanish telecom behemoth Telefonica (MC:TEF) SA (NYSE:TEF) is facing the brunt of Brexit, Britain’s vote to leave the European Union. According to Bloomberg, the company is considering seriously to postpone the planned initial public offering (IPO) of its Telxius infrastructure unit and the possible IPO of its U.K. wireless unit O2.

The likelihood of a delay is the result of market volatility apprehended worldwide in the wake of the Brexit referendum. However, Telefonica denied commenting officially on this issue. Consequently, the stock price of Telefonica plummeted nearly 18% in NYSE, on Friday.

Since May 2016, Telefonica was in talks with several banks to conduct an IPO of Telxius. Formed in Feb 2016, the division which was assigned the task of managing the company’s infrastructure assets. 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.

Telefonica was aiming 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 (NYSE:AMX) had spun-off its Telesite infrastructure division while Telecom Italia SpA (NYSE:TI) also opted for the same.

The flotation of the Telxius IPO has become important for 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 size was around $14.9 billion.

Telefonica’s debt currently stands at approximately €52.2 billion. 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. Telefonica was reportedly planning an IPO for its O2 division. Notably, European cable MSO Liberty Global Plc. (NASDAQ:LBTYA) had shown interest in acquiring O2 but it now looks to be impossible after the Brexit verdict.

According to some industry watchers, Telefonica may now be forced to sell some of its core assets to raise cash and pay-off debt. Otherwise its debt rating may be badly affected. Telefonica currently carries a Zacks Rank #3 (Hold).