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Telefonica puts German shares up for sale

In a bid to hang on to its investment grade rating, Telefonica chief executive Cesar Alierta has said the firm will be selling its subsidiaries in Germany as a way to cut debt.

Europe’s largest-by-revenue telecoms company is suffering from the effects of the euro crisis that has had a particularly adverse impact on its domestic market of Spain.

The company will offer 23.2 per cent of Telefonica Deutschland Holding AG at 5.25 (£4.30) euros to 6.50 euros (£5.30) each. The initial public offering (IPO) on the German stock market values the business at 6.6.billion euros (£5.5 billion). The final price for the German listing will be set on 29 October with shares expected to begin trading the following day.

(opens in new tab)Telefonica Deutschland is the smallest mobile operator in Germany with an approximate 16.4 per cent of market share. Due to its lacklustre performance its Spanish parent company may view the foreign asset as expendable.

Telefonica's woes stem from possible lowering of its credit rating. On Friday, ratings agency Standard & Poor’s placed Telefonica on ‘credit watch negative’ - an official notification that a company's credit rating may be downgraded. The ratings agency cited that Telefonica is prone to ‘sovereign related risks’; the risk of foreign central banks altering its foreign exchange regulations significantly, reducing the value of foreign exchange contracts.

The Spanish business must raise between 7 and 8 billion euros (£5.7 to £6.5 billion) a year through 2015 to cover debt repayments. A lowered credit rating would also add an increase to its refinancing costs - further compounding financial problems by adding to its estimated debt of 58 billion euros (£47 billion).