Telefónica tests stock market with German O2 flotation

http://www.guardian.co.uk/business/2012/oct/30/ipos-stock-markets

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Telefónica, Europe's largest telecoms company, is testing the appetite of European investors with the flotation of its German subsidiary O2.

The shares are expected to begin trading on Tuesday in Frankfurt and will help gauge the confidence of stock markets about the state of the European economy.

"This is the biggest IPO in Germany for years and sellout interest in the approximately €1.5bn [£1.2bn] offering shows growing demand in the market for new share offerings," said Daniel Winterfeldt, head of international capital markets for CMS Cameron McKenna, which is representing Telefónica. It is the biggest flotation in Europe since Spain's Bankia raised €3.1bn in July last year.

Telefónica plans to use the money raised to cut its debt pile, which stands at around €57bn. This is necessary to keep its prized investment-grade rating. The company, which has brands all over the world, is struggling with its recession-hit home market of Spain. In the first half of the year net income shrank 34% to approximately €2.1bn.

Financial traders are confident the market will welcome the IPO, which will still leave Telefónica with a majority: a stake of around 23% will be listed. In Germany O2 faces competition from bigger rivals Deutsche Telekom, the KPN brand E-Plus and Vodafone.

If demand is strong, the flotation of O2 could encourage other candidates such as the Russian mobile phone operator MegaFon, notepad producer Moleskine and Poland's state-owned real estate group PHN. Flotations have been rare in Europe this year with turmoil in the eurozone blamed for several cancelled IPOs, including that of German chemicals company Evonik.