Financiers target new Euro fibre opportunities

Europe’s broadband connectivity levels have traditionally suffered from a lack of coordination, funding and capital, compared with developed nations in Asia and in the US.

But things are changing. Talk to senior TMT debt bankers, and they’ll tell you capex financing for new fibre build is the flavour of the month: established incumbents are being joined by new players, often backed by infrastructure funds or private equity money, and are springing up all over Europe, successfully raising billions of euros in capital to build out new networks to meet the demand.  

Live examples being reported by TMT Finance include Warburg Pincus-backed German operator inexio, which is in the process of raising several hundred million euros of new capex financing to build out fibre in Germany. The opportunity is proving attractive to large investment banks, who are in the process of lining up to take part. inexio is hoping to connect all German households with broadband of at least 50 Mbps by 2018 – a target also set by the German government. 

Head north to Sweden, and EQT-backed IP-Only is also in the process of raising new funds, and is on an impressive growth trajectory. As reported by TMT Finance, the company is planning to raise a whopping new E600m to fund further fibre build out in Sweden, where it sees a compelling business case for accelerated investment. 

The UK’s fibre sector is also cranking into gear and BT’s Openreach is coming under increasing pressure from several angles. Challengers include CityFibre, which is currently attempting to raise a further financing round having appointed a couple of banks to run a process earlier in the year, and is tipped to be best placed to take on the clout of Openreach. Hyperoptic is also targeting a new financing round of around £100m, according to sources. Meanwhile, Gigaclear closed a new round of £111m from Infracapital, Woodford Investment Management, and Railpen (the railways pension scheme) to rollout fibre in the British countryside – a deal which underlined the appetite for the sector from pension funds and institutional investors. 

In Ireland, France and Italy, several government and incumbent-backed JVs and PPPs are in progress, as billions of euros pour in from the public and private sectors. For example, several international and Italian infrastructure funds are currently competing for a majority stake in Telecom Italia’s new broadband JV; while Altitude Infrastructure looks to be the frontrunner to secure a E1.5bn concession to rollout FTTH connection to around one million households in the North East of France, and a new project to follow in the Southeast of the country. 

As demonstrated by the deals above, and fueled by low interest rates, high liquidity and an invigorated stance from both private and public sectors, serious capital is starting to flow into the veins of Europe’s fibre networks, backed by the might of the ‘Juncker Plan’, which aims to see Next Generation Networks (NGN) provide 30 Mbps or more, for all EU citizens by 2020.

The business case for the private sector is also clear: global IP traffic continues to surge and Cisco predicts that it will increase nearly threefold over the next five years. Increasing video consumption in the consumer segment, coupled with strong demand for fast internet for SME customers and linking up mobile phone masts, all means strong, ongoing take-up opportunity.These factors are now piqueing the interest of a new wave of investors and traditional lenders, and complemented by the likes of government funds, DFIs such as the European Investment Bank, and alternative sources of finance including pension funds and insurance companies. 

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