Spain to defend ‘strategic interests’ after Saudi telecoms group buys Telefónica stake

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Spain has vowed to defend its “strategic interests” after Saudi Telecom Company moved to take a stake of almost 10 per cent in Telefónica, one of the country’s biggest companies.

STC revealed late on Tuesday that it was acquiring a 9.9 per cent stake valued at €2.1bn, marking the latest foray by state-owned Gulf telecoms companies into Europe.

The Saudi Arabian group, which is majority-owned by the country’s sovereign wealth fund, only informed Telefónica and the Spanish government about its actions shortly before releasing the public announcement.

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

Nadia Calviño, one of Spain’s deputy prime ministers, sought to strike a diplomatic tone in her first comments on the move, reminding the STC it needed Madrid’s approval while also emphasising Spain’s openness to foreign investment.

She said the government was analysing the deal and that it would “apply all the necessary mechanisms, always with the defence of Spain’s strategic interests in mind”.

Telefónica shares initially jumped more than 2 per cent following the news on Wednesday morning, but gave up most of their gains by early afternoon, leaving the company valued at just under €22bn.

STC said in a press release that it had acquired 4.9 per cent of Telefónica’s shares as well as “financial instruments giving economic exposure to a further 5 per cent of Telefónica’s share capital”.

It plans to convert those instruments into shares but needs official approval because the law requires government authorisation for any foreign investor taking a stake of 5 per cent or more in certain “strategic” defence companies. Telefónica falls into that category because it has businesses related to national security and cyber defence.

Calviño said the authorities would consider a variety of factors, including Telefónica’s ties with the defence sector, the exercise of voting rights and the participation of shareholders on its board.

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 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 its revenue in the past quarter, followed by Brazil, on 20 per cent, Germany at 18 per cent and the UK — where it part owns Virgin Media O2 — on 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 deal comes months after Tawal, an STC unit, bought tower infrastructure from United Group for €1.2bn, and at the same time that Gulf countries are using their wealth — boosted by rising oil prices — to search for deals amid a fall in valuations. Last year, Saudi Arabia’s 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.

Saudi National Bank, the country’s largest lender, 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 shares in the Swiss bank plummeting.

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

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