Telefonica boosts Chinese investment as Europe downturns
Published: 15 May, 2009
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Telefonica saw its first quarter results unexpectedly buoyed by a resilient Latin American business, despite the downturn in its European markets, and this may have encouraged the giant operator to focus more aggressively on emerging markets. It is to invest about €800m ($1.16bn) in maintaining its stake in Chinese operators following their major restructuring.
Telefonica already had a stake in China Unicom, which under the reorganization is merging with landline operator China Netcom. Without further investment by the Spanish firm, its share would have been heavily diluted after the merger (to about 2%), but following its new deal, it will end up with 5.5% of the combined entity, and will be Unicom's largest private shareholder.
According to The Wall Street Journal, Telefonica will increase its stake in China Netcom to 9.91% for a payment of €368m. Following the completion of the all-stock merger between Unicom and Netcom, Telefonica will then increase its holding again to bring it up to 5.5%. Last year, it was reported that Telefonica had gained informal approval to raise its holding in the enlarged Unicom further, at an unspecified date in the future, to as much as 10%.
Telefonica's total investment in the Chinese operator has cost it over $1bn so far, since it took its first stake in Netcom in 2005. Unicom has already sold its CDMA operations to China Telecom for $15.9bn.
Meanwhile, Telefonica's first quarter net profit rose by 9.8%, as its unexpectedly strong businesses in Latin America helped offset falling revenue from recessionary Europe, especially a deep slump in its home market of Spain. UK arm O2 has also been hit by the economic downturn and the falling value of the UK pound.
Net profit for the first quarter rose to €1.69bn ($2.31bn) from €1.54bn a year earlier. The brighter outlook for Latin America and a cost cutting drive helped the company stick to its full year forecasts for 2009. Worldwide, revenue fell 1.4% to €13.7bn. Revenue in Latin America rose 4.8% amid resilient consumer spending in the region, but Spain saw a 4.2% fall.
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