Telefonica’s Colombian unit will raise around €1.8 billion in capital to reduce debt and pay a fine related to a dispute with the government over local networks and infrastructure.

The Spain-headquartered operator will subscribe to €1.2 billion of the capital raising by Colombia Telecomunicaciones, in which it holds a 67.5 per cent stake, with the remainder apparently being contributed by the Colombian government, Telefonica’s partner in the operation with a 32.5 per cent stake.

Some €1.37 billion of the total will be used to repay debt to pension fund and asset manager PARAPAT, while €472 million is set aside to pay a fine.

In July, Colombia operators Claro (America Movil) and Movistar – the brand under which Telefonica operates in Colombia – were ordered to pay a combined sum of COP4.8 trillion (€1.3 billion) to the government after an arbitration tribunal found both companies in breach of network licensing agreements.

Telefonica said in a statement: “in relation to the arbitration award rendered in Colombia on 25 July regarding the reversal of certain assets linked to the provision of mobile voice services under former concessions, Telefonica and the government have agreed to perform a capital increase – proportional to their respective equity stakes – amounting to around €472 million, in order to meet the above payment.”

However, while complying with the arbitration decision, Telefonica reiterated it does not agree with the ruling: “considering it not adjusted to law, unfair, disproportionate and arbitrary.”

“In this sense, Telefonica reserves all of its legal rights and the exercise of any applicable legal action”.

It also said the execution of both capital increases does not have a significant financial impact on the group and it is strengthening “the financial position of Telefonica Colombia, which, coupled with the investments made in recent years, allows the company to undertake a new phase.”

According to GSMA Intelligence, Claro is the market leader with a 60 per cent market share in the country, followed by Telefonica (25.6 per cent) and Millicom (15 per cent).