OMERS Infrastructure Acquires TPG Telecom’s Tower Assets
Australian broadband services provider TPG Telecom Ltd said on Monday it will sell its mobile tower and rooftop infrastructure assets to Canada’s OMERS Infrastructure Management Inc for A$950 million ($670 million).
The sale of the passive infrastructure assets, which include more than 1,200 sites and form nearly a fifth of TPG’s mobile network footprint, will deliver net cash proceeds of A$890 million, which will be used to repay bank debt, it said.
Passive infrastructure includes sites, buildings, towers, masts and poles, and excludes digital capabilities in active telecoms networks.
“The transaction represents competitive long-term financing, which will reduce our total financial leverage and deliver lower borrowing costs,” TPG Chief Executive Iñaki Berroeta said.
The sale is the latest in a flurry of telecom sector deals in Australia, where firms are increasingly reviewing options for their aging infrastructure to reduce debt and try to capitalize on growth in 5G.
The country’s largest telecom firm Telstra last year agreed to sell a 49% stake in its mobile tower business for A$2.8 billion. Uniti Group last month also agreed to a A$3.6 billion takeover.
Toronto-based OMERS had C$32 billion ($24.8 billion) in assets under management and investments in 12 countries at the end of last year, according to its website.
The deal marks OMERS’ first fully owned Australian investment and its first foray into digital infrastructure in the Asia-Pacific region. It has already invested in German wholesale fiber company Deutsche Glasfaser and France’s XP Fibre.
“Australia and Asia-Pacific more broadly are priority markets for OMERS, where we continue to see significant investment opportunities,” OMERS said in a statement.
TPG said it will book a gain of about A$350 million to A$400 million after tax from the deal.
The deal is subject to approval from Australia’s Foreign Investment Review Board and is expected to close in the third quarter of fiscal 2022, TPG added.
Shares in TPG traded roughly flat at A$5.54 by 0021 GMT, while the broader market fell nearly 1%.
Florence Chong of IPE Real Assets also reports that OMERS Infrastructure to buy TPG Telecom’s tower assets for A$950m:
OMERS Infrastructure has acquired the telecommunication tower assets of Australian company TPG Telecom for A$950m in its first Asia-Pacific digital infrastructure play.
The portfolio consists of 428 towers and 809 rooftops, representing approximately 21% of TPG Telecom’s total mobile network footprint in Australia.
As part of the deal, TPG has agreed to an initial 20-year contract to use the tower assets. TPG has also committed to building additional towers to expand the network over the coming years.
Christopher Curtain, senior managing director, Asia-Pacific, for OMERS Infrastructure, said: “Australia and Asia-Pacific more broadly are priority markets for OMERS Infrastructure, where we continue to see significant investment opportunities.”
Curtain said the acquisition boosted OMERS’ portfolio of Australian infrastructure investments, alongside Port of Melbourne, Transgrid and the renewable energy developer, FRV Australia.
TPG Telecom CEO and managing director, Iñaki Berroeta, said the transaction represented competitive long-term financing, which would reduce the group’s total financial leverage and deliver lower borrowing costs.
Berroeta added that the transaction built on a landmark multi-operator core network (MOCN) agreement the firm announced in February of this year to enable regional network sharing with Telstra.
OMERS has completed investments in two other digital infrastructure transactions in Europe over recent years – Deutsche Glasfaser in Germany in 2020, and XP Fibre in France in 2019.
In 2021 and this year, OMERS lost out on the Optus and Axicom mobile towers portfolios. Both sold to AustralianSuper and its partners.
Earlier today, OMERS Infrastructure announced an agreement to acquire its first Asia-Pacific digital infrastructure asset:
- OMERS Infrastructure to acquire TPG’s telecommunication tower and rooftop portfolio
- Investment will be OMERS Infrastructure’s first 100% owned investment in Australia
- Assets will be underpinned by a long-term revenue contract with TPG
(9 May 2022, Sydney) – OMERS Infrastructure today announced that it has signed an agreement to acquire, from TPG Telecom Limited, 100% of its mobile towers and rooftop portfolio (the Tower Assets), for an enterprise value of A$950m. After the transaction, the Tower Assets, consisting of over 1,230 sites which are concentrated in metro locations across Australia, will become the largest independent tower company in Australia. The Tower Assets will provide OMERS Infrastructure with contracted revenue streams from a range of high-quality counterparties.
Under the terms of the acquisition, TPG has entered into a 20-year contract to use the Tower Assets, with options to extend. TPG has also committed to building additional towers to further expand the network over the coming years. The transaction will be OMERS Infrastructure’s first 100% owned investment in Australia and its first investment in the digital infrastructure sector in the Asia-Pacific region.
Christopher Curtain, Senior Managing Director, Asia-Pacific for OMERS Infrastructure, said: “Australia and Asia-Pacific more broadly are priority markets for OMERS Infrastructure, where we continue to see significant investment opportunities. We are excited to have the investment in TPG’s Tower Assets join our portfolio of high-quality Australian infrastructure investments, alongside Port of Melbourne, Transgrid and renewable energy developer FRV Australia. In the transaction, we see an excellent opportunity to realize our digital infrastructure thesis in the region. We look forward to working with the TPG team to first transition the business and then support its growth as it provides critical telecommunications infrastructure services to its customers.”
Following the closing of the transaction, the company will become the third global investment for OMERS Infrastructure in digital infrastructure. OMERS has completed investments in two other digital infrastructure transactions in Europe over the last three years – Deutsche Glasfaser in Germany in 2020, and XP Fibre in France in 2019.
OMERS Infrastructure was advised by RBC Capital Markets, Baker McKenzie, PricewaterhouseCoopers, Altman Solon, Grex Consulting and Alvarez & Marsal. The closing of the transaction is expected in Q3 2022, subject to customary regulatory approvals.
This is an excellent deal for OMERS Infrastructure, now proud owner of TPG’s telecommunication tower and rooftop portfolio and its first 100% owned investment in Australia.
In the press release, Christopher
Curtain, Senior Managing Director, Asia-Pacific for OMERS
Infrastructure, highlights the important points to note:
“Australia and Asia-Pacific more broadly are priority markets for OMERS Infrastructure, where we continue to see significant investment opportunities. We are excited to have the investment in TPG’s Tower Assets join our portfolio of high-quality Australian infrastructure investments, alongside Port of Melbourne, Transgrid and renewable energy developer FRV Australia. In the transaction, we see an excellent opportunity to realize our digital infrastructure thesis in the region. We look forward to working with the TPG team to first transition the business and then support its growth as it provides critical telecommunications infrastructure services to its customers.”
Telecom towers are precisely the assets that Canada's large pensions love investing in because they're regulated and provide steady cash flows over a long period.
The portfolio OMERS Infrastructure acquired consists of 428 towers and 809 rooftops, representing approximately 21% of TPG Telecom’s total mobile network footprint in Australia.
As part of the deal, TPG has agreed to an initial 20-year contract to use the tower assets. TPG has also committed to building additional towers to expand the network over the coming years.
Think of it like a super long-term lease in a building except TPG will be paying OMERS Infrastructure over a 20-year period to use the tower assets.
This is why Canada's large pensions are investing more in infrastructure assets where they can get a better match to their long-dated liabilities, with an inflation adjustment (typically regulated and part of the contract).
The other nice thing about digital infrastructure like tower assets is they aren't transportation assets like airports, ports and toll roads, which Canada's large pensions own plenty of.
These assets got hit during the pandemic but digital infrastructure is more defensive and builds on theme that as network demands grow in a country, you need digital infrastructure to meet that growing demand for more digital data.
What else? Australia is a developed economy with strong rule of law and it pioneered the private partnership model that has attracted foreign investors like Canada's large pensions.
It takes its infrastructure needs very seriously and plans accordingly.
In 2021, Infrastructure Australia put out a report, Reforms to meet Australia's future infrastructure needs.
You can download the Executive Summary here. I note this part of telecommunications and digital:
What else? In July 2020, in the midst of the pandemic, the Minister for Communications, Cyber Safety and the Arts, the Hon Paul Fletcher MP, announced the Australian Broadband Advisory Council (ABAC) to provide advice to the Government on ways to maximize the economic benefits of increased digital connectivity for Australian businesses and consumers.
That report, Riding the Digital Wave, came out in November 2020 and is available here.
Clearly Covid-19 has accelerated the digitization of the Australian economy as it has in every developed and developing economy:
Also worth noting this from first article above:
The sale is the latest in a flurry of telecom sector deals in Australia, where firms are increasingly reviewing options for their aging infrastructure to reduce debt and try to capitalize on growth in 5G.
Aging infrastructure is the Achilles' heel of telecom companies which all operate with a heavy debt load. As they all race to capitalize on growth in 5G, they need to reduce their debt and modernize their infrastructure.
Anyways, I am just providing you a glimpse into why these tower assets are critically important and a great long-term investment for OMERS Infrastructure.
Lastly, OMERS isn't the only one buying tower assets.
Exactly a year ago, I discussed how American Tower Corporations (ATC) struck a deal with CDPQ for the sale of a 30% stake in their European business, ATC Europe.
That transaction was for €1.6 billion, giving ATC Europe a total valuation of €8.8 billion.
You can read my coverage here on that deal.
One last risk I didn't mention is currency risk but because the Australian dollar trades in line with the Canadian dollar, currency risk isn't really a big factor in this deal (they can easily hedge it out).
Below, see how TPG Telecom is building a smarter, modern 5G network. Also, introducing TPG Telecom's family of leading brands which are servicing Australia's connectivity needs.
And now OMERS and its members are going to take part in the growth of this company as OMERS Infrastructure works with the TPG team to first transition the business and then support its growth as it provides critical telecommunications infrastructure services to its customers
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