(Telecompaper) Telefonica has announced its intention to sell EUR 750 million of bonds that can be exchanged for Telecom Italia shares, the first time it has showed a willingness to cut its stake in the incumbent Italian operator. In a statement to Spain's market regulator CNMV, Telefonica said the bonds will carry a fixed annual interest rate of between 5.25 percent and 6 percent and would mature in three years. However, they could be converted at any time before that or paid in cash if certain conditions are met. The mandatory exchangeable bond is a way for Telefonica to reduce its near 15 percent stake in Telecom Italia by about 5 percent, according to unnamed sources close to the transaction cited by Reuters. "This is a way for Telefonica to sell part of its stake in Telecom Italia while ensuring against downside risk if the shares lose value in the next three years," said one of the sources, with another adding that the exchangeable bond "is invariably going to lead people to ask what Telefonica plans to do with the rest of its stake in Telecom Italia."