Telefonica said it will sell €750 million in bonds that convert to Telecom Italia (TI) shares, so weakening its influence over the Italian incumbent.

Significantly, the Spanish and Latin American giant said the mandatory exchangeable bonds would reduce its TI stake to a level lower than it was prior to its equity increase in Telco – a TI shareholder group – which so irked Cade, Brazil’s anti-trust watchdog.

Telefonica said the shares involved represented about 6.5 per cent of its current TI voting share. Once the share transfer is complete, Telefonica envisages owning between 8.3 per cent and 9.4 per cent of the Italian firm’s voting share capital.

Cade, worried about Telefonica’s growing control of the country’s mobile market following its Telco stake increase, had ordered the operator to either exit its stakeholdings in Tim Brasil (majority-owned by Telecom Italia) or get a new partner for Vivo, its market-leading mobile subsidiary.

Telefonica’s preferred route appeared to be the break-up of Tim Brasil and the divvying up of the firm’s assets among rivals. Telecom Italia had always maintained it wanted to hold on to Tim Brasil.

Re-enforcing TI’s position, chairman Giuseppe Recchi told Reuters that Telefonica’s issue of exchangeable bonds did not affect the Italian company’s strategy.

How Cade will react to the news from Madrid is not yet clear.

The bonds that Telefonica has issued – paying an annual fixed interest rate of up to 6 per cent – will mature on 24 July 2017, unless they are exchanged or redeemed in advance.

According to a Reuters source close to the transaction, Telefonica would end up with about a 10 per cent stake in TI.

The dilution of Telefonica’s stake comes quickly on the heels of other Telco shareholders heading for the TI exit door. Banking groups Intesa Sanpaolo and Mediobanca, along with Italian insurer Generali, have each exercised an option to dissolve the seven-year Telco pact, preferring to focus on their core businesses.