Telefónica SA has sold a 4.56% stake in China Unicom to China United Network, the parent group of the Chinese carrier, as the Spanish telecoms firm seeks to ease its financial pressures.
The transaction will provide Telefónica with approximately HK$11 billion (about $1.4 billion) in cash once it is completed. Despite the sale, Telefónica will remain a significant shareholder in China Unicom, retaining a 5.01% stake.
In an official statement, Telefónica said the move was part of a decision to “proactively manage its asset portfolio,” while stressing that a “fruitful strategic cooperation” continues between the two companies.
The company also confirmed it will not sell any additional shares in China Unicom for the next 12 months.
The terms of the deal appear to preserve the close relationship between the firms: Telefónica chairman César Alierta will remain on China Unicom’s board, and China Unicom chairman Chang Xiaobing will continue to serve on Telefónica’s board.
Telefónica reported first-quarter results last month that the company described as “solid,” though the figures fell short of analyst expectations. The group’s Latin American operations were cited as the primary driver of profitability.
That said, the need to sell a sizable stake in China Unicom suggests the reported results may have been weaker than they appeared.
Adding to the company’s challenges, rating agency Standard & Poor’s recently downgraded Telefónica’s credit rating from BBB+ to BBB, a development that increases pressure on the business.
These setbacks coincide with a broader financial strain in Spain: Spanish banks received a €100 billion bailout from EU members amid the country’s precarious economic situation.
The combination of a stake sale, a credit downgrade, and the wider national financial turmoil raises questions about the root causes of Telefónica’s difficulties. Is the company primarily suffering from Spain’s broader economic malaise, or does this episode reflect the wider challenges European telecom operators face when operating in Asian markets?
Whichever explanation is correct, Telefónica’s decision to monetize part of its China Unicom holding is a clear attempt to shore up liquidity while maintaining strategic ties in a key international market.