KKR exits $2bn race for Optus Towers

Kohlberg Kravis Roberts is understood to have abandoned its pursuit of a $2bn Australian telecommunications tower portfolio. Picture: Nicolas Asfouri/AFP

New York-based buyout fund Kohlberg Kravis Roberts is understood to have abandoned its pursuit of the $2bn Australian telecommunications tower portfolio up for sale through Singtel’s Optus.

It leaves its consortium members, Canada’s Ontario Teachers’ Pension Plan and the Queensland Investment Corporation, to go it alone in the auction.

KKR was initially part of the three-strong consortium, but sources say that the parties found that the offering is not of an adequate scale for a three-way split, prompting the buyout fund to retreat, as revealed by DataRoom online on Wednesday.

Another factor likely to be playing a role in the decision is that KKR and Ontario Teachers’ have gained some traction in their efforts to buy the Australian listed electricity owner Spark Infrastructure Group.

The pair are now carrying out due diligence on the listed company that owns minority stakes in electricity assets in NSW, Victoria and South Australia after they increased their offer to $4.9bn or $2.95 a security from $2.80 a security earlier.

Final bids for the Bank of America-run Optus Towers competition are due in the second half of September and groups were short-listed in the second round of the competition in early July.

A data room opened last month for the suitors to conduct due diligence and management presentations are now taking place.

Optus is owned by the Singtel, which is backed by the Singapore government holding company Temasek, and is requiring that the new joint venture partner not only owns the majority of its Australian tower portfolio but assists in the construction of new towers as well.

It is understood that the Optus towers process is turning out to be highly complex and requiring a great deal of focus from bidding groups – a point of frustration among some at a time that plenty of major infrastructure acquisition opportunities are presenting themselves.

Singtel is looking to sell down its Optus towers to help fund the rollout of its 5G network.

On offer is a portfolio of between 2000 and 2500 Australian telco towers, and buyers are being offered the opportunity to own about 70 per cent of the portfolio, thought to be worth more than $2bn.

The understanding is that the portfolio on offer generates about $100m of earnings before interest, tax, depreciation and amortisation.

Initially, a large group of up to 30 parties showed interest, but now in the final stages are Ontario and QIC, advised by Gresham and Citi, along with Canadian private equity fund Brookfield, AustralianSuper, advised by Jefferies, and Stilmark, backed by Canada-based OMERS Infrastructure and ATN International, advised by Royal Bank of Canada and Q Advisors.

The Crown Castle telco towers business Axicom, owned by Macquarie Infrastructure and Real Assets, is also a final contender, advised by Credit Suisse and Macquarie Capital.

Axicom counts Optus as a customer and its challenge will be gaining approval from the Australian Competition and Consumer Commission, given that it is also a significant owner of local towers.

Crown Castle was purchased in 2015 for $2bn by a MIRA-led consortium.

The Future Fund and Morrison left the Optus competition after announcing in June that they had agreed to buy a 49 per cent interest in Telstra’s telco tower entity InfraCo for a price that values the business at $5.9bn.

Some suspect that the same Morrison and Future Fund consortium that purchased the stake will be well placed to purchase Telstra’s fixed line business.

Experts predict that the Australian-listed telco giant will sell down assets to position itself for a purchase of the National Broadband Network.

A trend among European telcos companies is that after first selling off their towers, they then move to divest their fixed telco cables and fibre optic cables to the same consortium.