Telefónica’s $1.370 Million Capitalization of its Colombian subsidiary

Brigard & Urrutia advised Telefonica on the transaction

The shareholders of Telefónica Colombia (ColTel), 67.5% owned by Telefónica and 32.5% owned by the Colombian Government, have agreed – in accordance with the established provisions – to a capital increase of approximately 1,370 million euros to pre-pay all commitments in relation to PARAPAT *.

This capitalization will be assumed by ColTel’s partners in accordance with their equity stakes. In this way, Telefónica’s capital injection into ColTel will amount to approximately 925 million euros and will be used to pay in full the obligations with the PARAPAT derived from the Operating Agreement. Thus, the above contract will be terminated in advance and will result in the transfer to Telefónica Colombia of the property, rights and telecommunications assets associated with it.

This operation strengthens the financial position of Telefónica Colombia, which, coupled with the investments made in recent years, allows the company to undertake a new phase.

In addition, in relation to the arbitration award rendered in Colombia on July 25th regarding the reversal of certain assets linked to the provision of mobile voice services under former concessions, Telefónica and the Government have agreed to perform a capital increase – proportional to their respective equity stakes – amounting to around 472 million euros, in order to meet the above payment. Telefónica will disburse around 318 million euros.

However, the execution of the payment does not imply that the Company agrees with the content of the arbitration award; Telefónica reiterates its disagreement with it, considering it not adjusted to law, unfair, disproportionate and arbitrary. In this sense, Telefónica reserves all of its legal rights and the exercise of any applicable legal action, national or international.

The two capital increases agreed upon today total around 1,842 million euros of which Telefónica would have to contribute approximately 1,243 million euros. The execution of both operations, and the consequent cancellation of the contracted debt with PARAPAT, does not have a significant financial impact on the Telefónica Group, implying as a whole a slight increase in consolidated net financial debt of around 40 million euros, i.e. approx. 0.1%. This is because up to now 100% of payment obligations –considering certain adjustments- with PARAPAT were already consolidated in Telefónica’s debt position.

Brigard & Urrutia advised Telefónica with Darío Laguado (Picture), Fernando Castillo, María Jimena Isaza, Catalina Manga and Laura Valencia Cossio.

Involved fees earner: Darío Laguado Giraldo – Brigard & Urrutia; Fernando Alfredo Castillo – Brigard & Urrutia; Catalina Manga Congote – Brigard & Urrutia; Laura Valencia Cossio – Brigard & Urrutia;

Law Firms: Brigard & Urrutia;

Clients: Telefonica;

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Author: Ambrogio Visconti.