Background on Telefónica and its Latin American Operations
Telefónica, a Spanish telecommunications company, has reportedly engaged the U.S.-based bank Citi as an advisor to sell its Chilean business, marking a significant step towards exiting its nearly defunct Hispam subsidiary operations. This move is part of Telefónica’s broader strategy to divest from Latin American markets where returns were insufficient compared to the cost of capital.
Telefónica’s Retreat from Latin American Markets
Under the leadership of President Marc Murtra, Telefónica has been withdrawing from several Latin American countries with Spanish-speaking populations where returns on investment were unsatisfactory. The company has prioritized focusing on core markets such as Spain, Brazil, the United Kingdom, and Germany. This strategic shift was emphasized by Murtra’s mantra, “Europa, Europa, Europa,” signaling a clear prioritization of European markets.
Financial Implications and Recent Transactions
The sale of the Chilean unit will result in a capital loss for Telefónica, as reported by El Confidencial. The company has already taken substantial steps to divest from Latin America, including the recent sale of its Peruvian operations to a fraction of their 30-year acquisition price. This move has put Telefónica at odds with its bondholders, who initiated legal action to prevent the sale to Argentina’s Integra Tec.
Prior to the Peruvian transaction, Telefónica had already divested its Argentine presence to local telecommunications giant Telecom. The company is also in the process of exiting Colombia, having sold its business to Millicom, and Uruguay. Furthermore, Telefónica faces tax-related challenges in Peru, with the National Supervisory Entity of Tax Administration (Sunat) imposing property seizures due to unpaid taxes dating back to the fiscal years 2009 and 2000-2001, totaling 318.9 million Peruvian soles (approximately $87 million).
Government Interventions and Ongoing Challenges
In addition to the tax issues in Peru, Telefónica encounters governmental hurdles in Argentina. The Argentine authorities have imposed a preventive measure, suspending the sale of Telefónica’s subsidiary to local firm Telecom.
Key Questions and Answers
- What is Telefónica’s strategy regarding its Latin American operations? Telefónica aims to prioritize and strengthen its presence in core European markets, such as Spain, Brazil, the United Kingdom, and Germany, while divesting from Latin American markets where returns on investment are insufficient.
- Why is Telefónica selling its Chilean unit? The sale of the Chilean business is part of Telefónica’s broader strategy to exit its nearly defunct Hispam subsidiary operations and focus on more profitable markets.
- What challenges is Telefónica facing in its divestment process? Telefónica encounters various challenges, including tax-related issues in Peru and Argentina, legal disputes with bondholders, and government interventions that hinder the sale of its subsidiaries.
