PRODUCT PROFILE

Latest Dublin Prices

Telefonica to buy back E2bn shares

Thursday, November 01 14:05:23

Spain's Telefonica offered to buy back preference shares worth some 2 billion euros as a part of a series of measures to reduce its 58 billion euros debt.

Telefonica will buy back the preference shares, a type of hybrid debt instrument, using 40 percent Treasury shares and 60 percent 2022 bonds with 4.185 percent coupon for the swap, the firm said in a stock market notice, confirming an earlier Reuters report.

"This will help with the debt," said Moody's analyst Carlos Winzer.

Europe's biggest telecoms company by revenue has taken a number of steps this year to pare its debt and hang on to its prized investment grade rating.

The firm raised as much as 1.45 billion euros in a sale of shares in its German O2-branded unit earlier this week.

It has also sold part of its stake in China Unicom and its call centre business Atento and said it may list businesses in Latin America.

If all preference share holders take up the offer, Telefonica will automatically shed 800 million euros of debt, taking it closer to its target for a debt to EBITDA ratio of 2.35.

Telefonica issued the preference shares, which were non-callable for 10 years, in December 2002 to strengthen its balance sheet and boost liquidity.

The dividend payable on the hybrid debt now looks expensive for the debt-laden firm, especially since it scrapped dividend payments on normal shares earlier this year to save cash.

Telefonica agreed to pay a dividend on the instruments, of euribor with a floor at 4.25 percent and cap at 7 percent up to year 10, changing to euribor plus 400 basis points from year 11, according to a company document from 2003.

The preference shares are currently trading at 100.194, with a yield of 4.1 percent. (C ) Reuters