BARCELONA/MADRID Spain's Telefonica (TEF.MC) wants to remain a long-term shareholder in Telecom Italia TLIT.MC and ruled out selling its stake to cut debt, its chief financial officer said on Wednesday.
CFO Angel Vila, speaking at a Morgan Stanley TMT conference, also said Telecom Italia did not need a capital increase, referring to a proposal made by Egyptian tycoon Naguib Sawiris on Monday to invest in the debt-laden Italian company using this mechanism.
"We are stable investors in Telecom Italia, and we are not considering monetizing the stake in Telco," said Vila, referring to the Telco holding company that owns 22.4 percent of Telecom Italia.
Telecom Italia had said on Monday that it would consider Sawiris' proposal and had presented some details to its board, but neither side disclosed the size and the objectives of the potential investment.
How Telecom Italia' major shareholders - including Telefonica - respond to Sawiris offer will play a role in whether it gains momentum.
Telecom Italia is controlled by unlisted Telco, made up of Telefonica and three Italian financial institutions, which collectively own 22.4 percent of the group. Telefonica owns roughly 10 percent of Telecom Italia.
Insurer Assicurazioni Generali (GASI.MI), and banks Mediobanca (MDBI.MI) and Intesa Sanpaolo (ISP.MI) are also shareholders.
It is not clear how big an investment Sawiris wants to make in Telecom Italia, although press reports have said between 2-5 billion euros. It is also not clear if any capital increase would be open to all investors or only Sawiris. He was previously involved in Italy through mobile group Wind, which he sold last year to Russia's Vimpelcom VIP.N.
Vila declined to comment on the details of Sawiris proposal or on whether Telefonica would accept to be diluted if a capital increase were to take place.
"We have not received any offer from Mr. Sawiris, and we are not expecting any offer from him. It seems he sent a letter to the company, so it is up to them to speak."
Asked whether Telefonica would accept to be diluted, he said only: "It's not clear that TI would need any capital increase at all." He said he preferred not comment on the speculation.
A spokesman clarified in a statement after Vila's remarks that Telefonica had not received an offer from Sawiris for its Telco stake, refuting a mid-October report in the Italian press. The spokesman also said that Telefonica did not believe Telecom Italia needed a capital increase.
NO CAPITAL INCREASE
Telefonica, which initially tried to buy Telecom Italia in 2001, paid 2.31 billion euros for a stake in the company in 2007. Telefonica got two seats on Telecom Italia's board when it bought out Pirelli's PECI.MI controlling stake along with Italian banks.
An analyst at a Madrid-based broker said that Telefonica was likely to oppose a new investor in Telecom Italia at a valuation lower than the price it originally paid.
"Telefonica entered in Telecom Italia paying more than 2 euros a share and surely will oppose ... any intent from a third party to enter at the actual share price of about 0.75 euros," the analyst said.
Telefonica already has written down part of its investment in Telecom Italia, but the shares are still valued in the books at 1.5 billion euros, the analyst said.
Telecom Italia shares closed up 1 percent to 0.73 euros per share on Wednesday, compared with a 5 percent decline for the European telecom index .SXKP.
At current market prices, a capital increase of 2-5 billion euros at Telecom Italia could give Sawiris control of around 17-33 percent of the group, a second analyst said.
Separately, Telefonica's CFO Angel Vila said on Wednesday that Telefonica had ruled out a capital increase itself. Some analysts had said this might be needed as part of the group's debt reduction efforts.
"We have no need for a capital increase and no intention to do a capital increase," said Vila, adding that Telefonica had made strides in reducing its debt this year via asset sales and the public listing of its German business.
Telefonica aims to have its net debt to core earnings (EBITDA) ratio at 2.35 times by the end of the year and for net debt to be around 50 billion euros by year-end.
(Reporting by Leila Abboud, Robert Hetz and Clare Kane; Editing by Jane Merriman)