Australia institutional investors buy 49% in Telstra's towers unit

It continues a trend of local institutional investors buying into brownfield infrastructure assets, albeit with a professional operator. Morrison & Company will manage the investors’ interest in Telstra InfraCo Towers, while Telstra will hold onto the outstanding 51% of the business. Telstra has also signed a 15-year agreement with InfraCo Towers, giving it access to existing and new towers.

The target asset is Australia’s largest mobile tower infrastructure provider, with approximately 8,200 towers. The prospect of a spinout was raised in 2018 when Telstra announced plans to simplify its operations, improve customer experience, and reduce costs. Establishing a standalone infrastructure unit was one of four key pillars to this strategy.

Initially, the company planned to keep its mobile network assets within its core consumer segment, spinning out fixed network infrastructure such as data centers, non-mobile fiber and other cables, exchanges, poles, ducts, and pipes. Earlier this year, it announced a restructuring into three groups: InfraCo Towers; InfraCo Fixed, comprising the fixed infrastructure; and customer-facing ServeCo.

As of July 2020, prior to the separation, Telstra’s infrastructure portfolio included 250,000 kilometers of fiber optic cable, 360,000 km of ducts, 8,000 mobile towers, masts and poles, 5,000 exchanges, two data centers, and access to 400,000 km of subsea cables. It generated income of A$2.73 billion for the 12 months ended June 2020, while incurring A$1.7 billion in internal access charges. Excluding those charges, the division accounted for 10% of overall income.

The transaction values the mobile towers business alone at 28x pro forma EBITDA for 2021. Telstra expects to return about half of its A$2.8 billion in net cash proceeds to shareholders, most likely through share buybacks and dividend payments. The rest will be used to pay down debt.

Andrew Penn, CEO of Telstra, said in a statement that the company intended to seek external strategic investment early in the 2022 financial year. However, it was “approached by the consortium earlier in the year as they recognized the value of these assets and provided a compelling rationale to progress the transaction ahead of schedule.”

Raphael Arndt, CEO of Future Fund, added: “This investment further strengthens the Future Fund’s exposure to digital infrastructure and the long-term thematic of data growth. We are pleased to partner with Telstra to play an important role in strengthening Australia’s 5G infrastructure.”

Other significant Australian infrastructure deals in the past 12 months include Canada’s Ontario Municipal Employees Retirement System (OMERS) buying a 20% stake in electricity network operator TransGrid from Kuwait Investment Authority (KIA). KIA was part of a consortium – featuring local and foreign investors – that acquired 100% of TransGrid in 2015 for A$10.3 billion.

Meanwhile, New Zealand-listed infrastructure investor Infratil rejected a takeover offer from AustralianSuper at a valuation of around NZ$5.4 billion ($3.8 billion). Managed by Morrison, Infratil has exposure to energy, transport, data, social infrastructure, and real estate.

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• Topics
• Australasia
• Infrastructure
• Expansion
• LPs
• Australia
• Future Fund
• Commonwealth Superannuation Corporation (CSC)
• Sunsuper
• Infrastructure