Vocus expects NZ float to yield $700m after underwhelming sales bid

Australian listed telecommunications company Vocus Group is believed to be forging ahead with the initial public offering of its New Zealand operations.

Australian listed telecommunications company Vocus Group is believed to be forging ahead with the initial public offering of its New Zealand operations, with investor meetings for the transaction set to begin next month.

It is understood that a non-deal road show will happen in about three weeks and Vocus hopes to list the business with a market value of about $700m.

While some industry experts describe the valuation hopes of Vocus as highly ambitious, others close to the equity market said they believed the valuation would be achievable.

The division generated $62m of underlying earnings before interest, tax, depreciation and amortisation for the year to June and over recent years, the earnings have been on an upward trajectory.

The plans were officially announced in November last year but an IPO of the operations across the Tasman has been greatly anticipated since 2019.

Vocus said the listing would happen before the end of the 2021 financial year, subject to prevailing market conditions.

Working on the float is Goldman Sachs, Jarden and Craigs, and the plans come after recent efforts were said to have been made to find a buyer for the business.

Sources say parties interested were mostly private equity funds that were prepared to pay about $400m for the business.

Local fund Pacific Equity Partners was understood to have been among those to have considered an acquisition.

TPG Capital looked a number of years ago and while infrastructure investors like Morrison & Co and Brookfield would normally be considered logical acquirers, they have been ruled out due to their ownership of telco rival Vodafone New Zealand.

A float of the New Zealand arm would enable Vocus to pay down debt and reinvest the proceeds into its network, strengthen its position in the Australian telecommunications space and offer dividends.

One of the agreements that Vocus has had with its lenders is that it would not pay out a dividend until its debt level was below 2.25 times its earnings. The ratio at June 30 was 2.69 times.

Vocus New Zealand is a fully integrated telco and energy provider that owns a significant national fibre infrastructure network and market experts say that one of the selling points for the float will be that it has a top management team.

It is led by Mark Callander, who previously ran M2 Group in New Zealand before it was swallowed in a $1.3bn acquisition by Vocus five years ago.

According to the Vocus June 30 accounts, Vocus NZ has intangible assets worth $366m and staged a 22.1 per cent lift in its annual revenue to $378.3m for the 2020 financial year.

A move to drive down debt and reinvest in its business may see private equity suitors eventually return to Vocus Group for a takeover play.

EQT Infrastructure and AGL Energy made offers in 2019 but walked away after due diligence.

Shares in Vocus closed up 7c to $4.23.