Telefónica pulls out of China Unicom to ease financial worries

Telefónica SA has sold a 4.56% stake in China Unicom to its parent group, China United Network, as the telecoms giant attempts to back out of its financial difficulties.

The stake will give Telefónica a HK $11bn ($1.4bn) cash injection once the transaction is completed. Telefónica will still remain a major player in China Unicom, however, with a 5.01% stake in the company.

In a statement Telefónica said the decision was made to “proactively manage its asset portfolio” and insisted that a “fruitful strategic cooperation” remained between the two companies.

The statement also confirmed that Telefónica won’t sell any of its shares in China Unicom for the next 12 months.

There appears to be no real fall-out from the terms, with Telefónica chairman Cesar Alierta remaining on the board of China Unicom and his opposite number, China Unicom chairman Chang Xiaobing, continuing on the board of Telefónica.

The Spanish TELCO posted first quarter results last month which they called “solid”, but were well below analyst figures, with the Latin American arm of the group anchoring profitability.

It could be argued though that this latest development reveals just how worrying those figures were.

And if this update wasn’t bad enough, the recent news from rating agency Standard and Poor’s downgrading Telefónica’s ranking to BBB from BBB+ compounds the issue.

This double hit comes at the same time that Spain’s banks received a €100bn bailout from EU members due to the country’s perilous financial state.

Is Telefónica just suffering alongside the general Spanish financial malaise? Or is this another example of European TELCOs struggling in the Asian market?

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