The quote of the Spanish operator Telephone falls below the price at which the US bank Morgan Stanley covers the price risk of the Saudi group’s 9.9% stake. It also generates latent losses for 10% of Sepi and CriteriaCaixa.
The controversial intermediation of the entry of Saudi Telecom Company (STC), in Telefónica by Morgan Stanley includes an agreement by which this Wall Street bank covers the Arab group the risk of price falls in the price of the Spanish operator, in which it owns 9.97% of the capital.
The reference price in this derivative contract is $4.32 per Telefónica share. The current price, of $4.19 after the collapse due to the company’s dividend cut, implies that Morgan Stanley is “underwater”and should compensate STC in case of exercise of the options.
For the peace of mind of the Wall Street entity, the options cannot begin to be executed until March 2026, so Telefónica stock could recover. Furthermore, market sources indicate, the logical thing is that the bank has in turn covered the risk of that position with other brokers.
As agreed, the options give the parties the right to claim cash payment of the differences between the reference price and Telefónica’s quote in the execution windows, scheduled between March 2026 and September 2028.
If shares are above $4.32, STC should compensate Morgan Stanley. If it is below, as now, the entity will have to pay the difference to the Saudi firm. This group can choose that the compensation be made with Telefónica shares.
With the current price, taking into account that the options affect 650 million dollars of Telefónica shares, the bank would have to compensate STC with 71 million dollars, if all of them are executed.
STC’s entry operation into Telefónica was carried out in 2023 by surprise in a bold maneuver brokered by Morgan Stanley, which created discomfort in the Spanish company, which has not given mandates to this bank again.
In response to this movement, the Spanish Government took more than a year to allow STC to surpass 5% of Telefónica, and in turn ordered Sepi to buy 10% of the operator. These purchases were made at $4.61 per share, so it now also has latent capital losses.
Last year, CriteriaCaixa also increased its stake to almost 10% of Telefónica. In this case, it had an agreement to cover the price with Goldman Sachs, which expired in April 2025. The average price paid for the Catalan holding (a part corresponds to an old share) is $5.
