More bad news for the Spanish telco after booking a non-cash €314 million write-down on its Peruvian unit in Q3
Despite Telefónica stating it was on-track to hit its 2024 financial targets even after the Peruvian impairment, the ongoing sale of its stake in its neutral fibre optic network in Peru has fallen through, according to regulatory filings in the country. The Spanish telco wanted to sell its stake to private equity fund KKR and Chilean telco Entel, and Reuters reported the transaction valued 100% of the network at about €550 million, including debt.
This deal was first announced in in July 2023 when Telefónica said it had agreed to sell a 54% stake in its fibre network to KKR and a 10% stake to Entel. If the transaction had been completed, KKR subsidiary Pangea Luxco would have obtained 54% of the shares of Telefónica-owned fibre company PangeaCo.
In a separate filing, Entel stated that talks were still ongoing with Telefónica and KKR but given the wider market conditions, the price the Spanish operator hopes to get may no longer match the price the buyers are willing to pay. Cinco Dias suggests that it was Telefónica that has chosen to terminate the deal.
Earlier this month, chief financial and control officer & head of Hispam Laura Abasolo (above) told Reuters, the deteriorating outlook for the Peruvian economy, tougher competition and political and judiciary instability pushed the telco to review the present and future value of its whole business in Peru.
According to Entel, the deal fell through “due to the breach of certain closing conditions” it did not specify. Telefónica did not disclose the value of the transaction but said the deal would cut its debt by €200 million.
Peru accounted for 3.5% of overall revenue in the first nine months of the year, Telefónica said at its results in early November. As a result of the write-down, the telco’s overall net profit fell to €10m in the third quarter, down from €502m in the same period a year ago.
Taxing issues
According to Bnamericas, Telefónica del Perú is facing difficulties due to a tax controversy and intensifying competition, leading shareholders to reduce share capital by 1.15bn soles ($302m) to rebalance the company and help offset a 2.8bn-sol loss in 2024. In April, Telefónica announced the payment of 1.36bn soles to Sunat after losing a court case regarding income tax declarations for fiscal years 2000 and 2001.
At the last shareholders meeting, it was agreed to cover the accumulated losses with an issue premium of 2.02bn soles and the capital reduction. In addition, Telefónica Hispanoamérica provided loans of 2.8bn soles this year.
Telefónica del Perú reported revenues of 4.53bn soles in the first nine months, a decrease of 7.2% year-on-year. Competition in the fixed and mobile businesses is also mounting, according to Bnamericas. In the second quarter, Telefónica had a mobile market share of 28.3%, behind Claro with 30.1% and 12.6m lines. Entel had 22.3% and Bitel 18.8%.
Home growth
Peruvian problems aside, in Brazil, EBITDA declined 5.9% in the quarter to €1,030 million, due to the impact of exchange rates, but in the first nine months it grew 2.2% to €3,066 million. So a Peruvian exit is not a signal for a Latam exit, particularly as the region was 24% of group revenues in the first nine months of 2024.
In Spain, Telefónica Infra ended September with 24 million premises passed with fibre. Telxius, the telco’s submarine cable management company, reported year-on-year traffic growth of 12% in the first nine months and maintained its high profitability ratio (48.9%). Telefónica also did well with fibre. Its international footprint of ultrafast networks in September stood at 178 million premises (+4%), of which 81.6 million were FTTH (+13%). This figure includes a total of 24.1 million premises from the Group’s various fibre vehicles (+19%). Most recently, the telco signed a five-year wholesale network deal with Zegona-owned Vodafone and Bluevia Fibra as part of that telco’s plans to bolster its fibre footprint.