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Saudi telecoms group acquires 9.9% interest in Telefónica

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Saudi Arabian telecoms group STC is acquiring close to a 10 per cent stake in Spain’s Telefónica valued at €2.1bn, a move that marks the latest foray by state-owned Gulf telecoms companies into Europe.

STC, which is majority-owned by the Saudi sovereign wealth fund, said in a press release that it had acquired 4.9 per cent of Telefónica’s shares and was using other financial instruments that would lift its stake to 9.9 per cent if approved by regulators.

Telefónica is one of Spain’s biggest companies. STC’s plan would catapult it past CaixaBank and BBVA — two pillars of corporate Spain with large stakes in the group — to become its largest shareholder. But STC said it was not seeking a controlling stake.

The transaction requires approval from the Spanish government because Telefónica has businesses related to national security and cyberdefence.

STC chief executive Olayan Alwetaid said in the statement that the company viewed the purchase as a “compelling investment opportunity to use our strong balance sheet whilst maintaining our dividend policy”.

Telefónica, which had a market capitalisation of €22bn before the announcement, said it had learnt of STC’s move on Tuesday. It took note of “STC’s friendly approach and its support [of] the management team, Telefónica’s strategy and ability to create value”.

Spain is still Telefónica’s biggest market, accounting for 27 per cent of revenue in the past quarter, followed by Brazil, with 20 per cent, Germany on 18 per cent and the UK — where it part owns Virgin Media O2 — with 13 per cent.

STC said the Madrid-based company had “a unique portfolio of best-in-class infrastructure assets” and was developing cutting-edge technology in areas such as cognitive intelligence and the internet of things.

The Saudi group said that in addition to the acquisition of 4.9 per cent of Telefónica’s shares it had acquired “financial instruments giving economic exposure to a further 5 per cent of Telefónica’s share capital”. It said it would “obtain the voting rights corresponding to this 5 per cent through the . . . settlement of these financial instruments after obtaining the necessary regulatory approvals”.

Under Spanish law, the authorities must approve the acquisition by a foreign investor of any stake of 5 per cent or more in certain “strategic” defence companies, including Telefónica.

The deal comes months after STC unit Tawal bought tower infrastructure from United Group for €1.2bn, and at the same time as Gulf countries use their wealth — boosted by rising oil prices — to search for deals amid a slump in valuation. Last year the Saudi sovereign Public Investment Fund backed a successful bid for Vodafone’s towers business. 

The neighbouring United Arab Emirates investment group e& increased its stake in Vodafone to 14.6 per cent in April, up from 9.8 per cent in 2022.

In Saudi Arabia, state-backed national champions have sought to extend their global reach alongside the PIF, which has invested in everything from video gaming companies and sports to electric vehicles and technology.

The country’s largest bank, SNB, acquired a 9.9 per cent stake in Credit Suisse late last year and inadvertently helped precipitate the bank’s downfall when the SNB chair ruled out increasing its stake, sending its shares plummeting.

STC is Saudi Arabia’s largest communications company, with more than 80 per cent of market share. It earned $17bn in revenues last year.

Additional reporting by Ivan Levingston in London and Simeon Kerr in Dubai

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