Telefonica Considers IPO of KKR-Backed Tower Unit

(Bloomberg) -- Telefonica SA is weighing a fresh attempt to list its wireless towers unit, according to people familiar with the matter, as it looks to join rival carriers in unlocking value from infrastructure assets.

The Spanish operator has been discussing a potential initial public offering of Telxius as soon as next year, according to the people, who asking not to be identified because the information is private.

Telefonica is exploring ways to monetize its infrastructure assets after struggling to grow revenue in recent years. It is also considering other options for the business including a merger with a rival tower company, one of the people said.

Private equity firm KKR & Co. took a roughly 40% stake in Telxius in 2017. Fast-fashion billionaire Amancio Ortega’s family office bought a close to 10% holding a year later. Chairman Jose Maria Alvarez-Pallete Lopez has said that the group is satisfied with Telxius as it is but could analyze anything that creates value.

No final decisions have been made, and there’s no certainty the deliberations will lead to a transaction, the people said. Representatives for Telefonica, KKR and Ortega’s office declined to comment.

Telecom operators are increasingly seeking ways to release capital from their tower portfolios, hoping to draw interest from investors attracted to the steady, long-term nature of the assets. The U.K.’s Vodafone Group Plc is planning an IPO of its towers unit in a deal that could raise more than 2 billion euros ($2.3 billion), Bloomberg reported last month. A spate of potential divestments are also emerging in Poland’s telecom sector.

Telefonica attempted to list Telxius in 2016 but scrapped the plan amid low valuations. At the time, investors were turned off by the unit’s unusual mix, which included towers and undersea cables.

In June, Telefonica Deutschland Holding AG sold a portfolio of mobile sites to Telxius for 1.5 billion euros in a deal that is set to double the size of its towers assets. Telefonica wants to complete the integration of the German masts and its stake in CTIL, a U.K. tower joint venture it has with Vodafone, into Telxius before deciding what action is best, according to one of the people. Telefonica also wants to separate its undersea cable operations from the mast operations ahead of any decisions, the person said.

The Madrid-based company needs to sell assets to help reduce debt as it will not post revenue growth for three years, analysts at Barclays Plc said in May. Telefonica shares have fallen more than 34% this year, giving it a market value of 22 billion euros.

Telecom companies, like those in many other industries, have largely shunned raising money through the IPO market this year because of the impact of the coronavirus pandemic on sentiment. There have been just two telecom IPOs on exchanges in western Europe so far in 2020, though their combined value is 34% higher than a year earlier, according to data compiled by Bloomberg.

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