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FTTH Conference 2013 Workshop Investors Day
Citation preview
Reggefiber Financing FttH in the Netherlands
looking back and looking forward
Manager Corporate Finance
Mark Meijer
1 | 20
looking back and looking forward
Investor Day, 19 February 2012, London,
Mark Meijer, Manager Corporate & Project Finance Re ggefiber
Contents
• Company Overview
• Financing structure
2 | 20
History
3 | 20‘Regge’ river + Fiber = “Reggefiber”
Achtergrond
Profile Reggefiber (1)
•Founded in 2005 by the private investment company Reggeborgh
•Reggefiber builds, owns, rents and operates passive (dark fiber) networks (FttH) in the Netherlands. I.e. Reggefiber is an Infrastructure asset
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(FttH) in the Netherlands. I.e. Reggefiber is an Infrastructure asset
•Since 19 December 2008 Reggefiber is a joint venture of Reggeborgh – KPN approved by competition authority NMa and regulated by OPTA
•Combination of KPN’s installed base of consumer clients with Reggefiber’s experience in building and operating FttH networks
•Current shareholding: KPN 51% - Reggeborgh 49% (joint control)
Reggefiber active as pure passive network operator
FttH value chain – Reggefiber is an Infra asset
CONSERS
Wholesale agreements
Consumers
Active Operators
Service providers
• Sells to consumers• Deliver services to
consumers• Communicate to
consumers• Rents active connection
to the home of each customer
Consumer broadband subscription packages
€ 40 – € 110 (triple play)
Wholesale broadband access
Wholesale agreements
SPSPSPSPSPSP
5 | 20
Indicative monthly price per Homes Activated
Indicative monthly price per Homes Activated
ODF agreements
Management agreement
Active Operators
• Rent passive fiber for each home from the passive operator when Service Provider sells a service
• Enables electronic traffic from home to SP
• Builds, owns and operates the passive fiber network
• Delivers open access to active operators
Passive Operator
Wholesale broadband access€ 30 – € 40 (triple play)
ODF Access€ 15,10 average (cap regulated: €18,84)
ODF agreements
activeoperator
KPN Netco
activeoperator
Reggefiber Operator BV
(seller)
NEM BV(owner)
Achtergrond
Profile Reggefiber (2)
•Tariffs and non-discriminatory passive network access regulated by OPTA and NMa remedies, providing long term certainty
•Line rental has been regulated by OPTA (maximum tariffs; CPI-indexed)
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•Line rental has been regulated by OPTA (maximum tariffs; CPI-indexed)
•Reggefiber is well positioned to benefit from the high broadband penetration in the Netherlands and the increasing demand for (symmetrical) bandwidth, the market trends towards single access, the company’s extensive FttH experience, strong shareholders and the regulatory certainty
•Balance Sheet total c. €1,6 bln ( of which c. €1,0 bln shareholders contribution)
•Strongly growing business (financing need will translate into follow up debt investment opportunities)
Achtergrond
Profile Reggefiber (3) Reggefiber Activities – ……growing at an increasing pac e
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All brands active on Reggefiber’s network
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• Company Overview
• Financing structure
Contents
9 | 20
Key debt investment considerations
1. Regulated infra business with long term regulatory certainty
2. Strong JV rationale and shareholder support
3. Future proof broadband infrastructure that can deal with the exponentially growing demand for broadband
4. Reggefiber’s management team has extensive experience in the telecom sector and combines proven entrepreneurial skills with network
10 | 20
sector and combines proven entrepreneurial skills with network construction experience and operational excellence
5. Relatively high barriers to entry as result of capital intensity
6. Open model; offering consumers choice; “clustering” marketing of different ISP’s; platform for new services; and thereby fuelling the uptake rate
Key debt investment considerations
7. Strong EBITDA margins around 80-82%. Lowest opex of existing telco infrastructures and predictable cost structure
8. Inflation resilient, stable, sticky and predictable cash flows
9. Limited technology risk and construction risk
10. “Hard” underlying network assets with strategic value that can be
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10. “Hard” underlying network assets with strategic value that can be mortgaged under Dutch law
11. A number of banks (including EIB) have participated in several transactions
Reggefiber Holding BV
KPN BV
Reggefiber(passive operator)
ReggefiberttH BV
Reggefiber Group BV
51%49%
Current financing structure – Multiple ringfenced struct ures
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Ringfenced structure 1(RF1)
ReggefiberFinance Holding Company 1 BV
NEM Subsidiary(network owner)
Active Operators
Debt Capital Markets Investors?
Ringfenced structure x
New Projects
NEM Subsidiary(network owner)
Ringfenced structure 2 (RF2)
ReggefiberFinance Holding Company 2 BV
NEM Subsidiary(network owner)
EIB and Commercial banks
€250m Financing €285m Financing
EIB and Commercial banks
Financing
Looking back – key message 1
• Each country is unique, which impacts the success and risks of the FttHbusiness and its competitive position versus other infrastructures. Specifically for the Netherlands:
• Three fixed networks: copper, coaxial cable, FttH
• High existing broadband penetration of more than 90%
• Densely populated country with FttH friendly soil conditions (favourable impact on capex)
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impact on capex)
• Competive structure: two regionally divided mature cable companies with closed networks compete with the incumbent on copper and on FttH
• ARPU on FttH-subscribers is significantly higher than the national average
• Network assets registered at the Dutch land registry implying these can be mortgaged
Looking back – key message 2
• Address the market risk (accept or mitigate); E.g.
• Demand aggregation (pre-selling of a minimal number of subscriptions) before starting the construction of FttH in an area
• Migrate existing customers from other infrastructures to FttH
• Operational (conditional) off take guarantees
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• Could public parties or policy measures help to mitigate the market risk?
E.g. in NL cost for education related to work can be deducted from your fiscal income. Equally why not a positive (fiscal) stimulus for broadband subscriptions that align with the goals of the Digital Agenda: 50% of European households should have subscriptions above 100Mbit/s. Lower or no VAT on these subscriptions?
Looking back – key message 3
• “Fit” the debt product (so far for Reggefiber project finance from banks)
• Ringfencing (operating separate companies in one company; each financing is a separate company)
• Repayment to zero and increasing pricing
• However repaying project financing loans on the one hand and having on
15 | 20
• However repaying project financing loans on the one hand and having on the other hand the ambition to roll out further the FttH network in the remainder of the Netherland seems sub-optimal
• Banks have limitations on their Balance Sheet (Basel 3, Total One Obligor, tenor). Reggefiber needs alternative long term funding sources
Looking back – key message 4
• Is FttH really a project business or is FttH a continuous run rate business (compare to an utility like an energy network distribution company)?
Nature of our FttH infra business: run rate business
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Looking back and looking forward
• The FttH roll out could be seen as a series of projects, however once completed it’s a regular mature company, which should ideally have a financing that reflects that maturity (i.e. it can have refinancing risk)
• Classical project finance – with no refinancing risk – becomes suboptimal after the roll out
• Shorter project financing maturities are not liked by banks (not all) as they find it difficult to assess the refinancing risk by a take out on the debt capital market
17 | 20
market
• There is a need for a mature “Bridge-to-Bond” or “Bridge-to-EURO Private Placement” market for (non-)rated FttH financing
• Using equity and bank funding for construction and the DCM-markets for the take out seems a logical model for Reggefiber’s debt funding.
• It frees up capacity in the bank market and would give Reggefiber long term funding that fits the cashflow profile of the future roll out (funding diversification and ALM)
2nd
Under consideration:
•Bridge-to-Private Placement/Bond
Looking forward – view on future debt funding
18 | 20
2nd €250m Project FinanceClosed September2012
•(Project) Bond issue e.g. on 1st Project Finance
•Whole Business Secutirisation: building a secured debt platform
1st €285m Project Finance Closed October 2010
We are exploring DCM funding as Reggefiber needs
diversification of long term funding sources
Looking forward
• There is a number of institutionals that do not have the credit assessment resources to do an in-depth credit assessment of a FttH project finance style transaction
• Solvency 2 makes investing in unrated paper not attractive
• There is a number of debt investors that are willing to look at unrated EURO Private Placement on FttH
19 | 20
Private Placement on FttH
• A number of infrastructure debt funds has recently entered the market
• Although a third bank project financing will be possible, we would like to find out where our sweet spot in the DCM-market is to make our debute in the future (funding diversification and ALM)
• Mark Meijer• Manager Corporate & Project
FinanceQuestions?
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Finance• +31 621713722• [email protected]
Questions?