Saudi Arabia’s STC Group (7010. SE) has amassed a 9.9% stake in Telefonica (TEF.MC), worth 2.1 billion euros ($2.25 billion), in a move to become the Spanish telecom giant’s top shareholder. The kingdom’s largest telecoms operator unveiled the investment on Tuesday after market hours. The holding consists of shares representing 4.9% of Telefonica’s share capital and financial instruments, giving it another 5% in so-called economic exposure to the company. STC, which did not disclose its voting rights, will be able to take control of these instruments once the necessary regulatory authorizations are in place.
STC is making a big play for Europe, having already bought tower infrastructure in the region and agreed to buy the assets of United Group last year. Earlier this year, it signed a strategic collaboration agreement with Telefonica aimed at technology services for clients and joint business opportunities on a vast scale.
Analysts say STC has a strong relationship with Spain because it sponsors the soccer club Real Madrid and operates several submarine cables with moorings in the country. But the firm also faces a severe cost problem that has weighed on profits. Its domestic operations accounted for 89 percent of revenue in the first quarter, leaving a small margin to cover staff costs and other expenses. Those expenses rose by almost 40 percent while operating profit fell by nearly two-thirds.
The company has been trying to cut costs recently, but the effort has yet to deliver results. This has hindered the growth of STC revenue, which still needs to reach its peak. The Saudi telecommunications giant has said it will continue to invest in new markets and expand its service offerings, but more is needed to reverse the trend.
As of the end of September, STC had a total debt of 3.3 trillion riyals ($8.9 billion), of which 1.4 trillion is in the form of foreign currency loans and bonds, according to its most recent annual report. The company has tried to reduce its debt burden through aggressive asset sales, but more is needed to boost profits.
STCs shares were down 1.7 percent in early trading in Madrid on Tuesday and have lost more than half of their value since the start of this year. The stock has lagged behind the index, up more than 10 percent this year.
STC is a digital leader in the Middle East and offers products and services to 160 million customers worldwide, including telecommunications services, IoT, 5G, cloud services, Fintech, and other advanced solutions. Its business is diversified, with a presence in 11 countries and revenues of 170 billion riyals. The company is listed on the Saudi stock exchange with a market capitalization of 49,200 million euros. It is 64 percent controlled by the Saudi government. The company has been undergoing a series of management changes in recent months, in part due to the weak performance of its mobile business and slow progress on restructuring plans.
