Telefonica SA (NYSE: TEF), Europe's largest telecommunications operator by revenue, will sell part of its stake in China Unicom (NYSE: CHU) for $1.4 billion to reduce debt as the eurozone debt crisis stresses Europe's economy and corporations based there.

The deal will reduce Telefonica's holdings in China's second-largest operator from 9.56 percent to 5 percent, Bloomberg reported Monday. Telefonica said the sale would improve financial flexibility. The company holds around $71.5 billion in net debt and has been seeking to raise capital by cutting its dividend and selling shares of its German and South American subsidiaries. The deal is expected to close at the end of July.

Shares of Telefonica were up five cents to $12.31 in Monday morning trading. Shares of China Unicom were up 69 cents to $14.24.