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Telefonica gets dividend from German unit before IPO-sources

* Telefonica moved 4.3 bln euros from German unit - sources

* Unit's net debt not to exceed operating profit in mid-term

* German IPO planned for end of this month

By Arno Schuetze and Harro Ten Wolde

FRANKFURT, Oct 11 (Reuters) - Telefonica has completed a financial restructuring of its German O2-branded subsidiary ahead of the unit's share offer later this month, with over 4 billion euros ($5.2 billion) of cash moved to the Spanish parent, two people familiar with the process said on Thursday.

In preparing for the spin-off Telefonica Deutschland has paid the parent 4.3 billion euros in a special dividend so that the German unit will have net debt of 1.2 billion euros at the end of the year, the sources said.

"Before the carve-out of Telefonica Deutschland the 4.3 billion was just part of group cash. It was always clear that it would continue to belong to the group," one of the sources said.

Telefonica Deutschland said last week in announcing its intention to float that its net debt stood at 1.1 billion euros at the end of September and that it aims next year to pay shareholders a dividend of 500 million euros on its 2012 profits.

Listing the German unit is part of Telefonica's efforts to reduce a 57 billion euro debt pile and keep its prized investment-grade credit rating, with the initial public share offer for Telefonica Deutschland expected to raise up to 1.5 billion euros from a sale of a 10-20 percent stake.

The company must raise between 7 billion euros and 8 billion a year through 2015 to cover debt repayments and risks rising refinancing costs if its credit ratings are cut.

Telefonica Deutschland has said in the medium term its debt should not exceed its operating income before depreciation and amortisation.

In the first half of this year it reported an operating profit of 597 million euros, up from 523 million in the same period last year, when it made an operating profit for the full 12 months of 1.1 billion euros.

Telefonica Deutschland's O2 mobile business is the smallest player in the German market behind Vodafone , Deutsche Telekom and KPN .

Telefonica Deutschland is set to issue the prospectus for its share sale next week, people close to the process said.

Telefonica declined to comment. ($1=0.7726 euros)

(Additional reporting by Robert Hetz in Madrid; Writing by Harro Ten Wolde; Editing by Greg Mahlich)

((harro.tenwolde@thomsonreuters.com)(+49 69 7565 1271)(Reuters Messaging: harro.tenwolde.thomsonreuters.com@reuters.net))

Keywords: TELEFONICA GERMANY/