Saudi Telecom Company has acquired a 9.9 per cent stake in Spain's Telefonica for 8.5 billion Saudi riyals ($2.27 billion), STC said in a statement on Tuesday.
STC, which offers digital products and services across the Middle East and North Africa region, said it does not intend to acquire majority control of Telefonica.
“Telefonica and STC Group share many similarities, with a vision to use technology to connect people and a strategy to drive growth,” said Mohammed Al Faisal, chairman of STC Group.
“This long-term, significant investment by STC Group is a continuation of our growth strategy, as we invest in vital technology and digital infrastructure sectors across promising markets globally.”
Madrid-headquartered Telefonica is one of the largest telecoms companies in the world, with a presence in Spain, Germany, the UK and Brazil.
Telefonica is expected to present a plan in November to grow its free cash flow, which the company said could reach €4 billion ($4.3 billion) this year.
The latest investment reflects STC’s growth strategy and is part of the company’s expansion plans.
"The investment supports STC’s capital recycling efforts and growth strategy to expand in promising markets and benefit from the return on these investments, which enhances the company‘s ability to invest in new domains and maximise shareholder returns in a sustainable manner," investment bank EFG Hermes said.
"The impact of this investment will be positive in the long term and will not impact STC's approved dividend policy."
Last month, STC completed its €1.22 billion acquisition of Netherlands-based United Group’s telecoms tower assets.
In the same month, iot squared, a joint venture between STC and the kingdom’s sovereign wealth fund, the Public Investment Fund, signed a binding agreement to acquire 100 per cent of technology company Machinestalk, which is focused on the Internet of Things.
The deal will add value for iot squared through Riyadh-based Machinestalk’s field services capabilities, technology, proprietary IoT platforms, internal development capabilities, local and international partner as well as customer relationships, the Saudi Press Agency reported at the time.
STC’s investment in Telefonica reflects its confidence in the company’s “leadership, its strategy and its ability to create value”, said Olayan Alwetaid, chief executive of STC.
“We do not intend to acquire control or a majority stake but rather we see this as a compelling investment opportunity to use our strong balance sheet whilst maintaining our dividend policy,” Mr Alwetaid said.
In an SEC filing, Telefonica said it "takes note of STC’s friendly approach and its support to the management team, Telefonica’s strategy and ability to create value".
Earlier this year, Saudi Arabia, the Arab world’s biggest economy, announced more than $9 billion in investments in its technology sector to bolster digital transformation in the kingdom.
The investments are led by a $2.1 billion commitment from Microsoft, which will build a super-scaler cloud in the country, Abdullah Alswaha, Saudi Arabia's Minister of Communications and Information Technology, said in February.
They also include Oracle's plans to invest $1.5 billion to boost the kingdom's cloud-computing capacity and $400 million from China's Huawei to enhance Saudi Arabia's cloud infrastructure.