Telefonica (TEF) strengthens its debt reduction strategy with KKR Tie-Up – July 20, 2021


Telefonica, SA‘s (TEF Free Report), Telefonica Colombia, recently announced its decision to sell a controlling stake in its fiber optic network unit to a global investment entity – KKR. Companies have collaborated to create this unit to create a nationwide free-to-use, self-sufficient fiber-to-the-home (FTTH) network.

The new company will be responsible for deploying the fiber-optic network in nearly 90 cities in Colombia while expanding its coverage to 4.3 million homes by 2024. The range of the network, which includes more than half of the poor areas served outside high-income urban areas, will benefit significantly from this deployment, thanks to the pioneering technology that facilitates the best FTTH services in Latin America.

This, in turn, will ensure profitable growth for Telefonica and drive the adoption of fiber optics with an improved subscriber experience, thus leading to rapid digitization in the South American country. With more than 380,000 customers using Telefonica Colombia’s fiber service, the operator will bring its current FTTH infrastructure, which covered 1.2 million homes in 50 cities by the end of the first quarter of 2021.

Under the terms of the agreement, Telefonica Colombia will be entitled to 40% of the capital of the new company, with KKR holding 60%. The transaction is valued at $ 500 million. Of this amount, the Telefonica branch will receive a payment of $ 200 million with eligibility to receive additional performance-based consideration of up to $ 100 million.

In addition to increasing broadband access, the deal will increase the value of KKR’s shared digital connectivity assets. It will also complement Telefonica’s fiber optic deployment efforts through resilient business models that will increase return on investment.

The sale of the fiber optic network in Colombia is part of Telefonica’s ongoing strategy of deleveraging its balance sheet by selling its infrastructure assets. The latest move acts as a major driving force for Telefonica to improve its liquidity position, especially after divesting Telxius’ mobile phone masts in Europe and Latin America to the US-based telecommunications infrastructure operator. United, American Tower Company (AMT Free Report), a few months ago.

The spin-off will allow Telefonica to reduce its debt by 200 million euros. Therefore, the Spain-based telecommunications giant is seeking help from investors to revive its business units in the pandemic-stricken market. With operations in 17 countries, the company capitalizes on the opportunities of the digital world through several growth strategies to improve long-term prospects, while enjoying good momentum in the smartphone market.

Zacks Rank # 3 (Hold) company shares returned 5.9% versus industry growth of 3.3% during the period since the start of the year.

Image source: Zacks Investment Research

Some top-ranked stocks in the industry are Telefonica Brasil SA (VIV Free report) and TELUS Company (YOU Free Report), each carrying a Zacks Rank # 2 (Buy). You can see The full list of Zacks # 1 Rank (Strong Buy) stocks today here.

Telefonica Brasil forecasts long-term profit growth of 14.5%.

TELUS expects long-term earnings growth of 8.2%.


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