Spain Weighs Placing Conditions on Saudi’s Telefonica Stake Bid

Alonso Soto
·2 min read

(Bloomberg) -- The Spanish government is considering imposing conditions on Saudi Telecom Co.’s acquisition of a 9.9% stake in Telefonica SA similar to those placed on previous deals, such as limits on asset sales and dividend payments, according to a person familiar with the matter.

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The provisions may include some of those applied in 2021 to the purchase of 23% of Naturgy Energy Group SA by Australian fund IFM Global Infrastructure, said the person, who asked not to be identified discussing confidential information.

Those conditions included backing for certain corporate policies, such as investment in projects deemed important for the nation, maintaining the legal registry and headquarters of Naturgy in Spain, a cautious dividend policy and an investment-grade leverage ratio. The buyer was also required to refrain from backing sales of critical assets or supporting any proposal to take the company private.

A final decision about the Telefonica stake has not been made and the government could decide to apply different conditions, the person added.

Spokespeople for the prime minister’s office, Telefonica and Saudi Telecom declined to comment. A spokesperson for Spain’s economy ministry referred to comments made this week by Economy Minister Nadia Calvino, who said the government hasn’t yet been notified of the acquisition.

Read More: Telefonica Deal Tests Europe’s Appetite for Mideast Wealth

STC’s announcement in September that it was acquiring the Telefonica holding for about $2.5 billion sparked controversy in Spain, where the former monopoly is considered strategically important for defense and security reasons.

Coming a year after Abu Dhabi’s Emirates Telecommunications Group emerged as Vodafone Group Plc’s biggest shareholder, the move was another example of government-backed Gulf companies doing deals internationally, in sectors ranging from sports to computer games and mining to health care.

The state-owned Saudi carrier, which bought roughly half the Telefonica stake directly and the rest through financial derivatives, has yet to submit a formal request to the Spanish government for approval to acquire the shares.

Spain has two main sets of rules that apply to foreign acquisitions of domestic companies. One, put in place during the pandemic, requires government approval for any acquisition of a stake of 10% or larger in firms considered strategically important, including industrial and media firms.

The other empowers the government to block purchases of stakes of 5% and above in companies that are strategic in terms of defense and national security, which applies to Telefonica.

So far, most high-profile acquisitions have been approved — including in Naturgy, media firm Promotora de Informaciones SA and technology and defense firm Indra Sistemas SA.

Spain and Saudi Arabia have a long-running business relationship. This includes several Spanish firms involved in the construction of a high-speed train to Mecca, as well as a separate contract for warships.

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