The Council of Ministers approved yesterday that the State Society of Industrial Participations (SEPI), a body dependent on the Ministry of Finance, buys up to 10% of the capital of Telefónica, as reported by the first Spanish telecom operator to the National Market Commission of Securities (CNMV).
The decision comes four months after the Saudi telecommunications company, Saudi Telecom, owned by that country’s sovereign fund, obtained 4.9% of Telefónica’s capital and bought a further 5% through financial derivatives. An operation that surprised the company itself, as the managers insist, and the Spanish Government itself, which did not hide its concern about the fact that a shareholder from an Arab country could sit on the board of directors of a strategic company and with outstanding participation in key projects for national security.
Now, State capital is returning to the shareholding of the country’s first telecommunications company for the first time since it ceased to be privatized in 1997.
According to the press release that has been issued, “MB has a vocation for permanence.” SEPI’s participation will provide Telefónica with more shareholder stability so that the company can achieve its goals and, therefore, will contribute to the safeguarding of strategic capabilities.”
For this, the State will have to disburse around 2,000 million euros, bearing in mind that, when the Spanish market closed yesterday, the company reached a capitalization of 20,510 million euros. “An amount that, if the operation is not carried out as quickly as possible, will rise, as has been seen in the company’s shares listed on the New York Stock Exchange, which rose by 4 when it became known, 3%”, market sources warn. From SEPI they talk about “a quick operation” to minimize the impact on the action.
In this way, SEPI would be the main shareholder, in front of a direct 4.9% held by STC, 4.9% of Blackrock, 4.8% of BBVA and the same percentage of CaixaBank, according to the information declared by the CNMV.
The surprise arrival of the STC company at Telefónica in September caused a lot of reluctance in the central government due to the company’s strategic nature and participation in projects very relevant to national security. The First Vice-President and Minister of the Economy, Nadia Calviño, was the first to raise her voice against the operation, and who also yesterday defended the Central Government’s move, because “this agreement is in line with the decisions that have taken other large European countries, such as France and Germany”, he assured.
The decision also does not scare the markets. “For the State to enter Telefónica’s capital and place a member on the board demonstrates the company’s strategic importance and stability. Only if the participation exceeds 20% would it have an impact to anticipate a rating increase. Up to this percentage is not considered to have explicit support”, explains Carlos Winzer, vice-president of the rating agency Moody’s and analyst of the telecommunications sector. In his opinion, the company’s strategy was “perfectly defined for the next three years on its Investor Day, and the entry of the State will not influence the finances”.
Telefónica refrains from commenting, but close sources, who show discomfort with the decision, remember that the company is “a regulated company and, therefore, the dialogue and public policies already conditioned it enough”. In fact, on the last day of Inversor the president and CEO, José María Álvarez-Pallete, publicly asked for “total deregulation for the company and to release it from the obligations it had when it was a public company”.
In any case, other sources in the sector consider that the STC company’s risk to Telefónica is more geostrategic than operational. “It’s normal for countries to want to have a minority of control in telcos, and now even more so with the security control mechanisms of 5G”.
