Telefónica, high stakes in Brazil
Telefónica has closed a deal with Caisse de dépôt et placement du Québec (CDPQ) for the construction, deployment and marketing of a fibre-to-the-home network in Brazil. This contract, signed by its subsidiaries Telefónica Brasil and Telefónica Infra, will develop this project in medium-sized cities outside the state of São Paulo.
It will create a 50/50 joint venture called "FiBrasil Infraestrutura e Fibra Ótica" which will operate as a wholesale, independent, non-discriminatory access operator. It will have a co-control governance model.
The Telefónica Group's 50% stake will be held through its subsidiaries with a 25% stake each. Telefónica Brasil will contribute approximately 1.6 million real estate units passed by FTTH fibre and will be the anchor tenant of FiBrasil.
For its part, the Canadian company, CDPQ, has committed to make a total investment of 1.8 billion reais, some 267 million euros at current exchange rates, including payments to Telefónica Brasil and FiBrasil for 50% of FiBrasil's capital. To this will be added certain payments to be made by Telefónica Infra, in equivalent economic terms, for 25% of the new joint venture.
This implies a valuation of the brownfield assets contributed by Telefónica Brasil of 16.5 times pro forma Oibda 2020. CDPQ's capital contributions, together with external financing to be obtained by the joint venture, will provide the funds necessary to undertake FiBrasil's business plan and achieve its roll-out targets of 5.5 million real estate units passed by FTTH fibre within four years.
The deal, pending the relevant authorisations, has been very well received by analysts who consider that it is aimed at monetising assets and sharing investments in non-strategic assets that are well valued by the market. It could also be the gateway to similar fibre deals in other Latin American countries.
Brazil also confirms itself as one of Telefónica's four major strategic markets, despite the constant headaches caused by its ongoing litigation with the Brazilian Treasury, which is now claiming some 5.4 billion euros in unpaid taxes. The Spanish operator strongly denies this.
Its share price, meanwhile, seems to have entered a sideways phase between 3.5 and 3.8 euros per share after rising nearly 15% so far this year. Technical experts believe that its profile will improve considerably once it manages to surpass and consolidate the benchmark of 4 euros per share, but in the meantime it will continue to be a tired and apathetic stock for short-term investors.
