Spanish incumbent is holding talks on assets sales in a bid to reduce debt and could make an announcement in the coming weeks, press sources say

Telefonica is working on the sale of its Mexican business and of its Central American assets, according to a Mexican press report.

The Spanish telco is mulling the move with a view to reducing its significant debt burden, El Economista reported on Monday, citing unnamed sources familiar with the situation.

The operator has been working on the potential divestment of assets that it does not consider strategic for a number of months, the paper’s sources said.

Valuation will be key to any sale: Telefonica has adopted the slogan ‘do not undersell’ for the process, the paper said. It has garnered estimates from various analysts, who put the value of Telefonica Mexico at between €1.1 billion-€1.9 billion and say the firm’s 60% stake in its Central American subsidiary is worth around €760 million.

Telefonica holds a 60% stake in Telefonica Centroamerica Inversiones, which comprises its operations in Costa Rica, El Salvador, Guatemala, Nicaragua and Panama, having sold 40% of the businesses to Guatemala’s Corporacion Multi-Inversions (CMI) in 2013. The pair’s shareholder agreement includes both call and put options so that should one party seek to sell its share, the other can either acquire the remaining stake or sell its own holding at a fair market value.

A trawl through Telefonica’s most recent annual results shows that Telefonica generated €1.34 billion in revenues in Mexico in 2017, while Telefonica Centroamerica Inversiones brought in €890 million. At group level Telefonica’s top line came in at €52 billion, thus the two units reported to be on the block account for 4.3% of the total.

The telco is making progress in reducing debt, but nonetheless its net debt stood at €43.6 billion at the end of June.

The sale might not wholly centre on debt reduction though.

Telefonica is finding life difficult in Mexico, where competition increased with the arrival of AT&T in 2015. According to the latest statistics from Mexican regulator the IFT, Telefonica remains second in the market with 21% of mobile connections at the end of Q1, some way behind America Movil’s 63.9% and still ahead of AT&T with 13.4%. Its share of the fixed-line market stands at just 3.1%.

We could find out relatively soon if Telefonica will succeed in finding a buyer willing to pay a decent price for its Mexican unit or its various Central American ops.

According to El Economista, it is holding "quite advanced" talks, making an announcement in the coming weeks a possibility.