stc is controlled by Saudi’s sovereign fund and will become Telefónica’s biggest shareholder if the Spanish government approves the transaction
The Spanish newspaper Cinco Dias reports that the country’s government is mulling using public funds to buy shares in incumbent Telefónica after Saudi’s biggest operator, stc, acquired a 9.9% stake. stc is controlled by the sovereign fund of Saudi Arabia.
The State Society of Industrial Participations (SEPI) confirmed that it is “monitoring the situation of Telefónica” and “is carrying out an internal exploratory analysis around possible acquisition of a shareholding” [translated from Spanish]. This development is a few days ahead of Telefónica’s Capital Markets Day, which takes place on 8 November. Telefónica’s Chair and CEO, José María Álvarez-Pallete, will present the group’s strategic plan for the next five years at the event.
First such injection
The SEPI is a public agency overseen by Spain’s Ministry of Finance and stresses that its analysis will not be in any way binding. Cinco Dias says that if investment from the SEPT is approved, then this would be the first injection of state-backed capital into the operator since privatisation, in line with European Union policy, in 1997.
Spain has proved one of the toughest markets in Europe for telcos. Telefónica’s shares have fallen in value by about 60% since 2016, while Orange Spain and MASMOVIL are hoping to merge, subject to approval from the European Commission and other authorities. Today Zegora, a British investment vehicle, announced it is to acquire Vodafone Spain for €5 billion – Vodafone Group has been looking to offload some of all of its Spanish opco for some time.
The operator’s market capitalisation at close of trading yesterday was €20.53 billion. Hence a 5% stake would cost about €1 billion.
On-going crisis in telecoms
The crisis in the Spanish and wider European market for telcos has attracted investors from outside the region. For example, e&, formerly known as Etisalat, is the United Arab Emirates’ (UEA) biggest telecoms operator and owns a 15% stake in Vodafone Group. e&’s biggest shareholder is the UAE federal wealth fund, Emirates Investment Authority.
This response by the Spanish government, via the SEPI, is a transparent move to safeguard ownership of Telefónica, given its central role in the economy and state security.
Since stc moved to acquire the 9.9% stake in Telefónica in September, speculation has been rife about its implications and what the government’s response should be. The government must approve the transaction under the rules of a decree in place to prevent a takeover because it involves a stake of more than 5% in a strategic sector.
Assuming the government approves the acquisition, stc would become the biggest single shareholder of Telefónica, displacing BBVA which has 4.839% of the voting rights. Blackrock is next with 4.983% and CaixaBank with 4.879%.