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Spain’s culture is richly rooted in the period when it had Muslim rulers. Saudi Arabian telecoms group STC has just added a modern link. It has bought a 9.9 per cent exposure in Spanish counterpart Telefónica worth €2.1bn.
An ambivalent Spanish reaction has little to do with heroic myths surrounding the Christian reconquista. Instead, it reflects the purchase of a meaningful stake in a national asset by a business controlled by an authoritarian foreign government.
Acting economy minister Nadia Calviño said Spain was reviewing the purchase to check strategic interests would not be compromised. Telefónica does business with defence groups in Spain.
Foreign investment laws mean any increase in voting rights above 4.9 per cent would trigger a national security review. Spanish eyebrows will arch at the fact that STC’s precise cash equities stake is 4.9 per cent, with the balance held via derivatives.
STC says it has no intention of taking control of Telefónica. Its aim is to spread its wings internationally. Saudi Arabia is diversifying its risks out of oil and gas.
The two sides already know each other. They announced a strategic partnership in February in areas such as the internet of things.
Telefónica churns out money. Free cash flows should average €3.6bn annually through to 2025. They easily cover dividends and share buybacks. Telefonica’s net debt-to-ebitda leverage ratio (including leases) should peak this year at about 2.5 times, according to S&P CIQ.
STC spent €1.2bn on tower infrastructure in eastern Europe in April. Telefónica would add to these not only in Spain but in Brazil, Germany and the UK. However, 79 per cent of the group’s value comes from Spain and Brazil, points out James Ratzer at New Street Research.
STC is following in the footsteps of rival e&. Last month, the United Arab Emirates business announced it wanted to increase its stake in UK group Vodafone to 20 per cent. It may influence a restructuring of the telecoms company.
STC will lack that pivotal role at Telefónica, which is a more stable business. And it is debatable whether Spain would allow Saudi Arabia to take a one-fifth stake.
There is an element of soft power in even a smaller, passive stake. But Spain has seen other Gulf investors come and go, notably Kuwait in the nineties. It can afford to remain sanguine.
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