STC buys 9.9% of Spain’s Telefonica for $2.25bn

Saudi telecoms conglomerate STC Group has acquired a 9.9 percent stake in Spain’s Telefonica for SAR8.5 billion ($2.25 billion) as part of its global expansion drive.

The investment makes the Saudi listed company the top shareholder in the Spanish telecom major after Spanish bank BBVA’s 4.9 percent holding.

The holding comprises 4.9 percent of Telefonica’s shares and financial instruments, providing an economic exposure over another five percent of the share capital.

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STC plans to secure voting rights for that five percent interest held through financial instruments after receiving regulatory approvals, the company said in a statement.

“Telefonica and STC Group share many similarities, with a vision to use technology to connect people and a strategy to drive growth,” said Mohammed Al Faisal, chairman of STC Group.

“This long-term, significant investment is a continuation of our growth strategy as we invest in vital technology and digital infrastructure sectors across promising markets globally.”

Spain’s acting economy minister Nadia Calvino on Wednesday told reporters the Madrid government was reviewing the deal.

“Telefonica is a strategic company for our country and as government we will apply all the mechanisms that are necessary to prioritize the defense of our strategic interests,” Calvino was quoted as saying by Reuters.

Olayan Alwetaid, chief executive of STC Group, stated that the company does not intend to acquire control or a majority stake.

STC’s growth strategy has resulted in several investments in the ICT sector inside Saudi Arabia and globally, the most recent being the acquisition by its subsidiary Tawal of United Group’s telecommunications tower assets in Bulgaria, Croatia and Slovenia.

Calling STC’s investment “friendly”, Telefonica said the Saudi company supports its management team and strategy.

STC, 64 percent owned by the Public Investment Fund, owns subsidies and stakes in companies operating in Kuwait and Bahrain.

Gulf telecom companies have started investments abroad, with UAE’s e&, formerly Etisalat, raising its stake in Vodafone Group to 14 percent in March.

Nishit Lakhotia, head of research at Sico, a leading regional investment bank headquartered in Bahrain, said in a note to clients on Wednesday morning the deal will provide STC Group with a good dividend yield of around 8 percent or more.

Going on Telefonica’s dividend payments for 2022, Lakhotia estimated STC Group will receive a dividend income of EUR170.8 million ($183.44 million) for 2023.

“While we for now do not see any other strategic benefit for the telco. However, as we have seen from Etisalat’s (e&) example, share price and currency volatility remains a risk,” he added.