UPDATE 2-Telefonica to use exchangeable bond to cut Telecom Italia stake

miércoles 16 de julio de 2014 16:24 GYT

* 750 mln euro bond converts to Telecom Italia shares in 3 years

* Marks first time Telefonica sells Telecom shares

* Telefonica is Telecom's biggest shareholder with 14.8 pct

* Telecom chairman sees no strategy change (adds comment from Telecom Italia Chairman)

By Julien Toyer and Leila Abboud

MADRID/PARIS, July 16 (Reuters) - Telefonica will sell 750 million euros ($1 billion) in bonds that convert to Telecom Italia shares, it said on Wednesday, effectively loosening its grip as largest shareholder.

In a notice to Spain's market regulator, Telefonica said the bonds, which pay 5.25 to 6 percent interest a year, would mature in three years but could be converted at any time before that or paid in cash if conditions are met.

The mandatory exchangeable bond is a way for Telefonica to reduce its 15 percent stake in Telecom Italia by about 5 percent, said a person close to the transaction.

It could also be a first step towards a full exit from the Italian carrier, although Telefonica has not made a decision on that issue, said another person familiar with the company's thinking.   Continuación...