(Reuters) - British engine maker Rolls-Royce Holdings Plc confirmed on Friday that Spain's Indra Sistemas SA had expressed an interest in taking a majority stake in its Spanish business ITP Aero.
In a statement, Rolls-Royce, which makes engines for the Boeing 787 Dreamliner and the Airbus A350 XWB, said it had received a "preliminary and conditional" indication of interest in the holding.
Indra confirmed it was in talks with the British company, but said there was no certainty they would lead to a binding agreement.
The news hit Indra's shares, with analysts flagging that the Spanish company will need to find mechanisms to finance the deal. Indra stocks were down 3.3% at 1611 CET, while Rolls-Royce shares were 0.2% lower.
Spanish website La Informacion, which first reported the news, said the deal will value ITP in 1.5 billion euros, against Indra's market cap of 1.7 billion euros.
"Several financing scenarios are possible, including a share swap - which would make Rolls-Royce entering Indra's share capital - or new convertible bonds, among others," said analysts at Bryan, Garnier & Co in a note.
"This, in our view, opens a new period of uncertainty for Indra's share price until a deal is announced or dismissed."
Rolls-Royce bought https://reut.rs/2WDnRHb 53.1% of the Spain-based aircraft engine and components maker it did not already own from privately owned SENER Grupo de Ingeniería SA in 2017 for 720 million euros ($811.01 million).
The business posted underlying revenue of 779 million pounds in 2018, making up just over 5% of Rolls-Royce's total sales.
In its statement, Rolls-Royce said it intends to retain a "long-term relationship with the (ITP Aero) business across its civil aerospace and defence programmes".
($1 = 0.8878 euros)
(Reporting by Shashwat Awasthi in Bengaluru; Additional reporting by Andres Gonzalez in Madrid; Editing by Saumyadeb Chakrabarty and Jan Harvey)