Telefónica, the largest European telecommunications operator by revenue, has agreed to sell back a 4.56 percent stake in China Unicom, part of an effort by Telefónica to reduce debt as the European financial crisis continues to hurt earnings in its main markets in Europe.

The agreement involves selling back more than one billion shares to China Unicom, listed in Hong Kong, for 1.1 billion euros ($1.4 billion). Telefónica said the sale would help improve its “financial flexibility,” according to a statement.

The deal is setback for the Spanish company, which has been active in the fast-growing Chinese mobile phone market since 2005.

Telefónica has been searching for ways to increase its cash reserves in an effort to service its more than $70 billion of outstanding debt.

Last month, the company announced plans for a share offering in its German subsidiary, O2 Germany, to raise capital. The Spanish company also said it was considering similar share sales at some of its 14 businesses in South and Central America.

Telefónica reported a 54 percent decline in first-quarter profit, to 748 million euros, as the number of Spanish customers fell 6.8 percent.

Telefónica’s shares rose 3.6 percent in late morning trading in Madrid on Monday. Its shares have fallen 22 percent in the last 12 months.

Telefónica will still hold a 5 percent stake in China Unicom, the second-largest mobile phone operator in the country after China Mobile. The Spanish company said it would not to sell any more China Unicom shares for at least 12 months.

The deal is expected to close by the end of July.

Article source: http://dealbook.nytimes.com/2012/06/11/telefonica-to-sell-stake-in-china-unicom-for-1-4-billion/?partner=rss&emc=rss