July 19, 2021
Telefonica is spinning off its fibre business in Colombia and has agreed to sell a majority stake to KKR, lopping US$200 million off its debt pile in the process.
We knew it was coming. Earlier this year Telefonica sold off fibre assets in Brazil and Chile via similar co-investment models and indicated that there were more fibre details in the pipeline at its Latin American operations.
And we perhaps could have guessed that KKR would be a likely investment partner. The investment group took a 60% stake in Telefonica’s Chilean fibre network business in February, a move the pair are now replicating in Colombia.
KKR will take a 60% stake in a new Colombian fibre company, while Telefonica will hold the remaining 40% and contribute its existing fibre assets in the country, pending regulatory approvals, of course. The new company will launch with a fibre-to-the-home (FTTH) network covering 1.2 million premises in 50 cities and municipalities, as of the end of Q1, and 380,000 customers. It aims to reach 4.3 million premises in nearly 90 cities within three years.
“The agreement with KKR will accelerate the deployment of fiber optic in Colombia at an unprecedented rate, in a market that has shown enormous potential in the last year,” said Alfonso Gómez Palacio, CEO of Telefónica Spanish-speaking Latin America.
The telco also pointed out that the new company will play its part in the government’s aim to improve connection speeds in Colombia and reach 70% of connected households in the next 12 months.
But for Telefonica this deal, like the others it has brokered in the region and elsewhere, is about more than spreading fibre connectivity. It’s about monetising assets and cutting debt.
The new fibre business as a whole is valued at half a billion dollars – or around 20x pro forma OIBDA (Telefonica’s preferred earnings metric) – so Telefonica will pick up $300 million from KKR; $200 million is payable immediately with a further $100 million subject to performance levels.
“This new announcement is another step in the path that the company has set out in the region to ensure profitable growth, crystallizing the value to its infrastructure and implementing innovative and agile business models that improve the return on invested capital,” said Laura Abasolo, General Director of Finance, Control and Corporate Development of Telefónica S.A. and head of Telefónica Spanish-speaking Latin America.
Like towers, fibre assets are finding favour with investors looking for predictable, long-term returns. These co-investment deals Telefonica is chasing – as well as the Chilean agreement with KKR, it has a 50/50 deal with Caisse de dépôt et placement du Québec (CDPQ) for FiBrasil, and also shares control of its German fibre business Unsere Grüne Glasfaser with insurance group Allianz – enable it to keep one foot in the long-term infrastructure market, while freeing up some cash in the near term.
It’s too early to call this a tried and tested model for the Spanish operator, but it’s starting to look like a good idea.
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