Global funds now want a slice of NBN’s fast fibre

The Australian broadband operator has just tapped investors for $3bn, putting it on the path of financial discipline.

NBN has tapped investors here and offshore for more than $3bn in recent weeks.

NBN Co has been quietly talking up its story with debt investors across Asia and US in recent weeks, and in the process the broadband operator has been rushed by bond investors, raising a massive $3.2bn to fund its expansion plans.

NBN’s top finance and treasury executive Fiona Trigona has been leading the back-to-back round of meetings in New York and through Asia to secure the fresh long-term funding. The briefings come as debt investors are shifting their focus from the hot tech trend of AI to the infrastructure that is helping deliver booming demand for data. That’s where the NBN fits in.

The bond program puts NBN right up there as one of Australia’s biggest corporate debt issuers, but it’s in global money markets where the broadband operator is making waves.

NBN Co's Fiona Trigona.

This week, a $US1bn ($1.45bn) issue settled from US debt capital markets. The funds were across two issues of three and five years. That came on the heels of a $1.75bn raising from Australian investors, which including funds earmarked under a seven-year Green Bond.

As NBN moved from a network builder to operator in recent years, it too has been working at selling its financial story. While it’s the federal government that has funded the build, and ongoing equity injections, NBN is in the process of standing on its own feet financially.

Last financial year it raised just under $6.5bn from debt capital markets and bank loans on commercial terms, allowing it to repay the outstanding and final $5.5bn tranche of its $19.5bn in Commonwealth government loans. This final payment happened in June.

The means NBN’s $26bn debt funding is from private markets, and this is forcing the operator to maintain the commercial discipline that comes with running long-range infrastructure assets.

With the recent issues, NBN now has more than $20bn outstanding in global bond markets. It also has $6.1bn in Australian money markets.

Significantly, global investors are now more comfortable with the NBN story. They get the technology, they understand the business model, the ownership structure, and they can see the earnings uplift as well as a path to being cashflow positive.

In an indication of support the latest US raising had more than five-times the demand for the bonds on offer. This means that Trigona was able to price the bonds on par with those sold to Australian investors.

Global investors are now more comfortable with the NBN story. Picture: Bloomberg

For most companies, offshore borrowings usually come at a higher rate, given currency risk and more competition between companies for funds.

“We achieved a cost of funds which was comparable to Australian funding, which sets us up very well in the future,” Trigona tells The Australian.

Nearly a quarter of the latest offshore bond deal was sold to offshore central banks and sovereign wealth funds, which are known as highly conservative investors. Another asset manager put in an order close to $US500m, which is a substantial investment from a single fund.

“What investors are seeing now, is a very strong government-owned company. They’re also very happy with the performance of the company, especially with our improved debt metrics that they’re pleased to see how we’re rolling out capex as well, and also the fact that we’re delivering what we said we’re going to deliver on,” Trigona says.

NBN’s bankers BofA, Citigroup, Goldman Sachs, JP Morgan and MUFG arranged the offshore issue.

The investors now crowding into NBN’s bonds are typical low risk debt investors. They are looking at assets with ultra-long life, a massive user footprint and big cashflows. NBN’s operating cashflow came in at $3.66bn last year, although is not yet generating free cash flows.

“They see us as very much an infrastructure company, and happy to invest in that. They see the running of the business is very commercial, and that’s why they’re very happy to invest with us as well.”

Surging demand for data, helped by more sophisticated devices like phones, televisions and even appliances being connected to the internet in the home remains part of the growth story of the NBN.

In recent months, NBN’s interim chief executive Philip Knox has outlined plans for NBN’s biggest upgrade program since rolling out the network, which will see 90 per cent of its connections reach close to 1 gigabit per second service. Backed with $2.4bn of funding from Canberra, this means the network will move to full fibre.

“Investors are all very aware of the data usages going in one direction,” Trigona says.

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Originally published as Global funds now want a slice of NBN’s fast fibre