Saudi Arabia Becomes Telefónica’s Largest Shareholder

Saudi Arabia’s STC Group has quietly acquired a 9.9% stake in Spanish telecom company Telefónica worth €2.1 billion. The Saudi company is also seeking voting rights for its shares but has stated that it does not intend to gain control or a majority stake in Telefónica. This investment is seen as a compelling opportunity for STC to use its strong balance sheet while maintaining its dividend policy.

Telefónica has described Saudi Arabia’s move as “friendly” and was informed about it on September 5th. As part of Riyadh’s long-term strategy to diversify its economy away from oil dependence, this major share acquisition is its second recent venture into European communications. The purchase follows STC’s investment in European telecommunications infrastructure back in April when it agreed to buy tower infrastructure worth €1.2 billion from the United Group.

However, concerns have been raised about STC’s status as an arm of the Saudi state, as it is majority-owned by Saudi Arabia’s Public Investment Fund, which is controlled by Crown Prince Mohammed bin Salman. There are security concerns regarding state-controlled foreign companies investing in strategic infrastructure, such as telecommunications. The EU Commission has warned that traditional limits on company ownership are insufficient when a state or sovereign fund is involved, specifically mentioning China and Saudi Arabia as countries of concern in this area.

Telefónica’s market value has significantly dropped in recent years, and this investment from Saudi Arabia provides a much-needed boost. The Saudis not only hope to receive healthy dividends but also to import Spain’s telecommunications know-how to enhance their own technological capabilities, particularly in the development of digital cities in Saudi Arabia. Meanwhile, Riyadh aims to support and promote its local companies to become global players in the telecommunications sector.

Telefónica had been actively seeking a new investor, including exploring options in the Middle East. However, Saudi Arabia’s investment came unexpectedly and at the right time for the struggling Spanish telecom company.