(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By Quentin Webb
LONDON, July 26 (Reuters Breakingviews) - Telefonica
(TEF.MC) may need to put dividends on hold for longer. With
Spain’s financial crisis worsening, the telecoms operator has
sensibly scrapped the payout for 2012. The move is belated
recognition that two previous dividend cuts were too timid, and
means the group could now cope with being shut out of bond
markets for all of this and next year. But a pledge to reinstate
payouts for 2013 could prove too optimistic.
Fears that Spain may need a full bailout, and perhaps a debt
restructuring, have sent the country’s borrowing costs soaring,
with 10-year bond yields hitting an ugly 7.6 percent this week.
That has concentrated minds at Telefonica HQ: with 58 billion
euros of debt, and its creditworthiness yoked to Spain’s, the
group is suffering collateral damage.
Shelving dividends should save about 4.2 billion euros,
Bernstein estimates. It will be particularly unwelcome for the
Spanish lenders that are Telefonica’s biggest investors, BBVA
(BBVA.MC) and La Caixa (CABK.MC): each own more than 5 percent
and previously enjoyed hundreds of millions of euros a year in
income. To placate them, and other cash-hungry telecoms
investors, Telefonica has promised to resume dividends next
year, at a halved 0.75 euros a share.
But even that may not happen - for reasons partly outside
Telefonica’s control. Heavy debt maturities continue into 2014.
If Spain’s crisis worsens, the group might well need to be ready
for a longer market shut-out. Telefonica also needs to sell more
non-core businesses to keep deleveraging, and buyers could prove
too scared or too stingy to assist.
Telefonica is also taking on excess boardroom pay – but this
move looks as half-hearted as its earlier dividend tweaks.
Directors are taking a 20 percent cut, but were very richly
rewarded to begin with, with the best-paid independents
trousering more than 500,000 euros. Top executives will get
about 30 percent less this year. So they should: the reduction
is largely because a total return-based “performance share plan”
from 2009 will not pay out. In any case, a cut of that size to
Executive Chairman Cesar Alierte’s 10.2 million euro package
would still leave him earning more than his French and German
rivals, combined, made in 2011. Meanwhile, shareholders go
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- On July 25 Telefonica of Spain said it would cancel this
year’s dividend and share buyback programme, as a “one-time
exceptional measure” as it dealt with risks and instability
arising from an “extremely challenging economic and financial
environment”. The move means Telefonica can cover debt
maturities through end-2013 without accessing the bond markets.
- The company plans to resume shareholder payouts in 2013
with a dividend of 0.75 euros a share. It also announced a 20
percent cut in pay for board directors, and said executives
would see a 30 percent drop in total compensation, partly
because no shares will vest this year under a profit-share
scheme. Telefonica stock stood 5.4 percent lower by 0832 GMT at
8.19 euros a share, hitting lows not seen since 2003.
- Telefonica statement: link.reuters.com/xak69s
- Reuters: Spain's Telefonica scraps dividend in bid to pare
Gravy train [ID:nL4E8IK2IS]
Local doom-loop unbundling [ID:nL3E8I25XH]
Help lines [ID:nL4E8GV3I1]
- For previous columns by the author, Reuters customers can
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(Editing by Chris Hughes and David Evans)
Keywords: BREAKINGVIEWS TELEFONICA/
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