Spain studies participation of Saudi company STC in “strategic” Telefónica

Spain is analyzing the purchase by the Saudi group STC of a 9.9% stake in Telefónicawhich supposes a possible obstacle to the operation, to guarantee the defense of its strategic interests.

STC contacted the Spanish government on Tuesday to inform it of the operation, which would make STC the largest shareholder in the Spanish telecommunications company, the acting Minister of Economic Affairs said in Brussels on Wednesday, Nadia Calvino.

“Telefónica is a strategic company for our country and as a Government we will apply all the mechanisms that are necessary to prioritize the defense of our strategic interests“, said Calvino to journalists when asked about the movement of STC.

Madrid could hinder STC’s buyout, as Telefónica provides services to the Spanish defense industry and the government can intervene in buyouts of more than 5%.

STC said late Tuesday that it had acquired a 9.9% stake in Telefonica worth 2.1 billion euros ($2.25 billion), following the lead of other Middle Eastern companies investing in European and Latin American telecoms operators.

STC It is the largest telecommunications operator in Saudi Arabia and is 64% owned by the Saudi Public Investment Fund (PIF), the main engine of Crown Prince Mohamed bin Salman’s 2030 Vision to decouple the economy its dependence on oil.

Meanwhile, European telcos such as Telefónica have struggled to pay off huge debts amid slow growth in the mobile business and heavy investment in the latest technologies such as the 5G network.

The companies have tried to raise funds by selling off their tower businesses, have lobbied the European Commission to allow market consolidation and have been fighting with technology companies to get infrastructure investment financed later.

Telefónica’s total debt is almost double its market value of almost 22 billion euros.

“This is a much-needed boost for Telefónica, given the huge investment to roll out 5G broadband fiber in key major markets.“, said Paolo Pescatoreanalyst of PP Foresight.

Now both companies will have the opportunity to collaborate more closely to increase efficiencies and launch new products on a global scale, he added.

In an attempt to protect companies whose value had plummeted since the COVID-19 pandemic from hostile takeovers, the Spanish government has had the power to block acquisitions of stakes equal to or greater than 10% in listed companies by entities outside the European Union and the European Free Trade Association.

The threshold at which the government can intervene was recently lowered to 5% for defense-related companies.

Calvino He said that Madrid is analyzing the application of the relevant defense mechanisms, the sector, its relationship with the security and defense of Spain, the shareholding of STC, the exercise of voting rights and participation in the council or other bodies. company decision.

“Fortunately, since we came to the Government we have strengthened all the mechanisms to protect our sectors and strategic interestsCalvino added.

Telefónica is listed as a defense provider on government websites, supplying “systems and equipment” to the military and satellite services to the aerospace branch of the Ministry of Defence.

Link with Huawei

A Spanish government source also pointed to possible problems in STC’s relationship with telecoms giant Huawei Technologies, including a recent memorandum of understanding between the two to develop fiber optic broadband.

Information technology has been a sticking point in China’s relations with the United States and European countries, which in some cases have banned Chinese products for security reasons.

Spain is not among the 10 EU countries that have banned the use of Huawei and ZTE in their 5G telecommunications networks, but there is increasing pressure from the EU for all member states to do so.

Neither STC nor Telefónica responded to requests for comment on Huawei’s work with STC. Huawei, ZTE and Beijing have rejected Western accusations that the Chinese equipment could be used for espionage.

Telefónica, whose shares rose 0.4% on Wednesday on the Madrid Stock Exchange, said it had been informed of STC’s investment on Tuesday, calling it “friendly”.

STC’s participation consists of 4.9% of Telefónica shares and financial instruments that give it another 5% in the so-called “economic exposure to the company”. He said he plans to secure voting rights for that 5% stake through financial instruments after receiving regulatory approvals.

Source: Reuters