CWC.L Share News (CWC)

* Sells 40 percent stake to CMI for $500 million

* Deal allows debt cutting while bringing in new partner

* Price could rise by $72 million if assets perform well

By Tracy Rucinski

MADRID, April 30 (Reuters) - Spain's Telefonica isselling 40 percent of its Central American business toGuatemalan-based Corporacion Multi Inversiones (CMI) for $500million in a drive to cut debt while keeping control of assetswith potential to grow.

Europe's biggest telecom provider, battling a recession-hithome market and a heavy debt burden, sold a string of assetslast year in a fight to bring net debt below 47 billion euros($62 billion) this year from 51.3 billion euros in 2012.

The sale to CMI, owner of Guatemalan fried chicken chainPollo Campero, brings in cash and a new partner in a businessthat Telefonica will continue to manage with majority control.

For the deal, Telefonica will spin off the assets fromGuatemala, El Salvador, Nicaragua and Panama into a new group.

Analysts have long tipped Ireland, the Czech Republic andCentral America as non-core assets that Telefonica might sell.

Yet Central America, with 30 million inhabitants - a thirdof whom are under the age of 15 - and a growing middle class,offers strong potential for wireless services compared with moremature Latin American markets and largely saturated Europe.

"The transaction allows Telefonica to crystallize some valueand keep reducing its leveraging ... and illustrates the varietyof options it has to pursue this goal," Espirito SantoInvestment Bank said in a note to clients.

Telefonica has halted plans to float its broader LatinAmerican business but is still considering selling smallerassets as part of its debt cutting. Reports have also flagged apartial listing of its Colombian business.

A senior executive told Reuters earlier this month that thecompany had handled all the tax and legal paperwork for an IPOin Latin America, but plans were "in the freezer" and it wouldtake 45 to 60 days to get them ready again.

NEW PARTNER

For now, Telefonica will add its global footprint to CMI'slocal know-how in a new business model that offers opportunitiesto jointly develop their markets.

CMI has transformed from a small family business in the1920s into one of Central America's biggest corporations withinterests in food, construction, finance and infrastructure.This is its first venture in telecommunications.

The sale price could rise by up to $72 million according tofuture performance, valuing the assets at 6.5 times earningsbefore interest, taxes, depreciation and amortisation (EBITDA)in 2012, Telefonica said in a regulatory filing.

Britain's Cable & Wireless Communications has saidit wants to expand in Central America, both organically andthrough acquisitions, and was tipped as a potential buyer forsome of Telefonica's assets in the region after raising cashfrom several asset sales.

"We are unsure where this leaves Cable & WirelessCommunications," Espirito Santo said.

Telefonica's shares, which have gained 9.4 percent so farthis year, were trading 0.4 percent lower at 11.11 euros, inline with declines on Spain's blue chip index and otherEuropean telecom firms.