STC Group buys 9.9% stake in Spanish telecom giant Telefonica

TC Group, Saudi Arabia's largest telecom operator, has acquired a 9.9% stake in Telefonica, valued at 2.1 billion euros ($2.25 billion), as part of its strategy to become the largest shareholder in the Spanish telecommunications giant.

This investment in Telefonica marks STC's second venture into Europe's telecom market, following its agreement to acquire tower infrastructure worth 1.2 billion euros from United Group in April.
Telecom groups in the Gulf region are expanding their overseas investments, with Emirates Telecommunications Group (EAND.AD), also known as e&, increasing its stake in Vodafone Group (VOD.L) to 14% in March.

STC disclosed this investment after trading hours on Tuesday. This stake comprises 4.9% of Telefonica's shares and financial instruments that provide an additional 5% of economic exposure to the company. STC intends to obtain voting rights for this 5% economic interest through financial instruments once regulatory approvals are granted.

STC's CEO Olayan Alwetaid stated: "We view this as an attractive investment opportunity, leveraging our strong financial position, all while maintaining our dividend policy." He emphasized that STC has no intentions of gaining "control or a majority stake" in Telefonica.

Telefonica responded to STC's investment, characterizing it as "friendly" and stating that it was informed of the move on Tuesday. STC collaborated with US investment bank Morgan Stanley (MS.N) to establish this position, according to sources familiar with the matter. Legal advisory services were provided by Linklaters for STC and Allen & Overy for Morgan Stanley. Morgan Stanley, Linklaters, and Allen & Overy declined to comment on the matter.

In Madrid, Telefonica's shares saw a 2.9% increase to 3.86 euros as of 0725 GMT. STC's shares remained relatively stable, with a 0.1% increase to 39.60 riyals ($10.56) at the opening of the Riyadh market.

STC has subsidiaries and stakes in companies operating in Kuwait and Bahrain. It is majority-owned by Saudi Arabia's Public Investment Fund (PIF), a key component of Crown Prince Mohammed bin Salman's Vision 2030 initiative aimed at diversifying the economy away from oil dependence.

Telefonica is scheduled to present a new strategic plan on November 8, with a focus on growing the company's free cash flow, which its CEO anticipates could reach 4 billion euros this year. Like its European competitors, Telefonica has faced challenges to profitability due to intense competition and substantial investments in 5G and optic fiber infrastructure. To fund these initiatives, the company has been selling stakes in more mature businesses such as submarine cables and mobile masts.