Telefonica plans to sell off its O2 Irish mobile business for $1 billion in cash to a subsidiary of Hong Kong conglomerate Hutchison Whampoa Ltd.

Spain-based Telefonica is Europe’s second largest telecom provider, after Vodafone. But its home country, where over a quarter of its workforce is employed, has been hit hard by the economic downturn. The sale is the latest in a string of assets it will sell off to reduce its growing debt.

Hutchison Whampoa is controlled by Asia’s richest man, Li Ka-shing. Mobile operator O2 is Telefonica’s prize asset, so analysts believe that it will do everything it can to avoid selling it off altogether.

News of the sale has been rumored for several days but was formally announced this morning. If it’s approved, Reuters reports, the two mobile operators, Hutchison Whampoa and Telefonica, will be united, taking market share in Ireland to 37.5 percent with 2 million active subscribers.

The combined entity will have 120 stores and 1,300 staff in Ireland, Reuters claims. It’s not yet clear whether current employees should anticipate extensive restructuring and/or layoffs.

Telefonica’s debt peaked at €56.3 billion ($73.7 billion) in 2011, and the company hopes to cut it to less than €47 ($61.5) billion this year.

Top image via Zacky