By Sean Carney

PRAGUE--The Czech unit of Spain's Telefonica S.A. (TEF) Monday said it has taken on a four-year loan worth 3 billion koruna ($153.2 million) to refinance debt due this year and for general corporate purposes.

The loan is priced at 175 basis points above the three-month Prague Interbank Offered Rate, or PRIBOR, the company said, adding that this lending rate represents "significant savings in financial costs compared to the previous debt facility."

The company has seen solid operational results but there has been a fall in profitability due to market saturation, the steady decline in demand for fixed-line services and the recession. Some analysts have said the company may take low-priced loans to keep its dividend policy intact.

"Telefonica CR historically is a dividend stock with a dividend payout of roughly CZK40 per share...but if the company wants to maintain its dividend for as long as possible, it may have to increase its indebtedness," said Tomas Mencik, analyst at Cyrrus in Prague. Mencik has an accumulate recommendation on the stock and a target price of CZK417.

Telefonica Czech's spokesman Hany Farghali said the company's indebtedness has not changed, only that the company has achieved "very favorable" terms.

Mr. Farghali said the loan is being used "for daily operations" and that it was not intended to help Telefonica Czech raise money for dividend payouts or to finance the company's approved buyback of up to 10% of its shares from the market.

The loan is being jointly arranged by the local units of UniCredit S.p.A. (UCG.MI), Erste Group Bank AG (EBS.VI), Komercni Banka AS (BAAKOMB.PR), Citigroup Inc (C) and KBC Group NV (KBC.BT).

At 1358 GMT Telefonica Czech's shares were trading up 0.9% at CZK399.1 in Prague, in line with the overall higher market.

Write to Sean Carney at sean.carney@dowjones.com

Go to http://blogs.wsj.com/emergingeurope/ for the new Dow Jones blog on Central and Eastern Europe, covering business, politics, society and more, written by our correspondents across the region.

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