Approval risks seen as spur for Telstra’s early towers deal

Telstra’s network of towers is the largest in Australia.

Analysts say Telstra’s decision to lock in Morrison & Co and the country’s largest sovereign wealth fund as buyers of a 49 per cent stake in its telecoms towers portfolio was likely to have taken into consideration Foreign Investment Review Board approval risks.

Some suspect Telstra could have achieved a higher price than the 28 times earnings before interest, tax, depreciation amortisation and leases it gained through the $2.8bn sale if it had run a sales process in the second half of the year as planned.

But given the assets would be considered significant from a national security perspective, obtaining permission from the FIRB for another foreign bidder offering top dollar could have been a prolonged process.

Telstra is likely to have strong connections with the winning members of the consortium including the Future Fund, Sunsuper and the Commonwealth Superannuation Corporation, which negotiated exclusively for the stake.

They are all well known to the federal government and likely seen as sound owners from a national security perspective.

Next to come from Telstra in terms of sales are other infrastructure assets within its portfolio.

Its ducts, fibre, data centres, subsea cables and exchanges have been housed in Telstra’s InfraCo fixed division that was created as part of a corporate restructure last year.

A sale or partial sale cannot be ruled out and could reap the telco billions of dollars at a time infrastructure investors are willing to pay top dollar for assets.

While the latest deal will prove a major windfall with respect to management fees for Morrison & Co, the timing of the sale will not be great news for rival Optus.

Bidders in that auction running right now are likely to be reluctant to pay over 28 times EBITDA for its assets now, given that the Telstra portfolio is considered superior.

The Future Fund and Morrison & Co have dropped out of the competition to buy a stake in the $2bn Australian telecoms tower portfolio owned by Singtel’s Optus.

Optus, with assistance from adviser Bank of America, is yet to shortlist bidders for its competition to buy 70 per cent of its tower assets after receiving indicative offers by June 17.

However, the shortlist from about 10 parties is expected to be released to bidders by Sunday.

Telstra was expected to launch its sales process for a 49 per cent stake in its tower entity InfraCo following the Optus process and the thinking had been that there were parties keeping their powder dry for that competition.

However, Telstra announced on Wednesday the stake has been sold.

The network of towers is the largest in Australia and the consortium that purchased the assets includes the Future Fund as its largest investor, Sunsuper and the Commonwealth Superannuation Corporation (CSC), with Morrison & Co as its manager.

InfraCo owns and operates about 8200 tower assets including over 5500 mobile towers supporting critical digital infrastructure.

Macquarie advised Telstra, while the winning consortium is believed to have sourced $800m to fund the transaction from Commonwealth Bank, NAB and Barclays.

The Future Fund is Australia’s sovereign wealth fund with $179bn of assets under management and has been taking advice on tower acquisitions from Barrenjoey Capital Partners.

In the running for the Optus portfolio, meanwhile, are the Macquarie Infrastructure and Real Assets-owned telco Axicom, advised by Credit Suisse and Macquarie Capital, Digital Colony, advised by Goldman Sachs, and the Blackstone-backed Phoenix Tower International.

Australian telecoms tower company Stilmark is also competing with Canadian pension fund backer Omers and ATN International, advised by RBC and Q Advisors, while Brookfield was earlier believed to be around the hoop.

KKR, together with Queensland Investment Corp and Canada’s Ontario Teachers’ Pension Plan, is competing and they are believed to be taking advice from investment bank Citi and advisory firm Gresham.