Multinational telecommunications company Telefonica has announced plans to start insolvency proceedings for its Peruvian subsidiary, Telefonica del Peru. Essentially, according to many reports, this is a strategic move to restructure its Peru unit by filing for bankruptcy protection.
Indeed, a number of news outlets have pointed out that Telefonica del Peru's board of directors have agreed to request what is known as an Ordinary Bankruptcy Procedure (PCO), suggesting that voluntarily joining the PCO is the best way to protect the provision of telecommunications services to Peruvians. Telefonica serves more than 13 million customers across the country.
This doesn’t therefore seem to be a prelude to a Telefonica departure from Peru. Indeed, Telefonica has said that Telefonica Hispanoamerica, the division that manages operations in Argentina, Chile, Colombia, Ecuador, Peru, Mexico, Uruguay and Venezuela, has reportedly agreed to supply a credit facility of up to 1.55 billion Peruvian soles (US$412.2 million), and with a maturity of 18 months, to meet the operational cash requirements of the beleaguered Peruvian operator. However, Telefonica del Peru's liabilities are not, apparently, guaranteed by any other company of the group.
As we reported last December, when the company received a credit ratings downgrade from agency Moody’s, Telefonica del Peru has been trying to manage its financial issues for some while.
It seems therefore that this latest decision reflects the continuing negative financial situation of the operator, not least massive tax contingencies that are more than 20 years old and a difficult regulatory environment that the company feels is placing it at a competitive disadvantage.
Mobile World Live reports that In its most recent financial results statement, for Q3 2024, Telefonica booked a EUR314 million (about US$329 million) non-cash impairment on its Peruvian subsidiary, describing the level of competition as “aggressive”.
The group has said that it will continue to explore strategic alternatives with regard to its investment in the Peruvian operator.
How strong a presence in Latin America Telefonica plans for the long term remains to be seen. In February we noted that Telefonica was preparing to sell its Mexico unit, not long after it was said to be exploring sales in Argentina and Colombia.
