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Spain will defend 'strategic autonomy' after Saudi Arabia moves in on Telefonica

Telecom giant has major presence in Latin America and ties to Spain's defence industry
The Telefonica logo is displayed in Barcelona, Spain, on 2 March 2022 (AFP)

Spain is scrutinising Saudi Telecom Company’s (STC) bid to take a major stake in Telefonica, one of the country's largest companies, as it looks to ensure its “strategic autonomy". 

In an announcement late Tuesday, STC, which is majority-owned by the country’s sovereign wealth fund, said it had paid $2.25bn for a 9.9 percent share in Telefonica, a move that would make it the Spanish company's largest shareholder.

Telefonica has a major presence across the Spanish-speaking world, Germany, and the UK. The company is also a provider of systems and equipment to Spain’s military and defence ministry, according to Madrid.

"Telefonica is not just a flagship company but a strategic operator and the government is going to be vigilant to ensure Spain’s strategic autonomy," government spokeswoman Isabel Rodriguez said. 

Speaking to reporters in Brussels, Economy Minister Nadia Calvino said the government had in recent years "strengthened" the mechanisms to protect its "strategic sectors" and pledged to apply "all necessary measures" to defend its interests. 

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STC has already acquired a 4.9 percent stake in the company but has built up its position through other “financial instruments” that would allow it to take its share of Telefonica to almost 10 percent, according to the company.

To execute the move, it needs permission from the Spanish government, which has the power to reject any foreign investor from taking a stake of five percent or more in certain “strategic” defence companies, which Telefonica falls under due to its work with the military.

Potential obstacles

A potential complicating factor could be STC’s ties with China’s Huawei Technologies. The two recently signed a memorandum of understanding to develop fibre-optic broadband, part of Saudi Arabia’s larger spree of deals with Beijing.

Both Telefonica and STC have downplayed any potential roadblocks to sealing the deal.

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STC said the move would allow it to benefit from the "potential" offered by Telefonica's "unique portfolio of best-in-class infrastructure assets" while insisting it did "not intend to acquire control or a majority stake" in the company. 

In a statement, Telefonica characterised the acquisition by STC as "friendly".  STC is 64 percent owned by Saudi Arabia's sovereign wealth fund and has operations in Kuwait, Bahrain, and Malaysia.

The deal underlines Saudi Arabia’s wider push to scoop up international assets, whether it be in countries like Pakistan facing an economic crisis or cash-strapped European companies.

The sovereign wealth fund is the main vehicle for Crown Prince Mohammed bin Salman’s efforts to reduce his kingdom's economy away from its dependence on fossil fuels via projects like Neom and Red Sea developments.

The fund has also been accused of crowding the private sector and consolidating economic power in the hands of a new elite backed by Riyadh.

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