Ooredoo group infra carveout progresses

Reporting by Yedda Wang & Taku Dzimwasha; Analysis by Olga Stahl, CFA

TMT Finance has learnt that Qatar-based telco group Ooredoo QSC [QE: ORDS] is inching towards a telecom infrastructure carveout in the Middle East and Africa (MEA).

Sources said that the telco group is considering carving out its telecom towers, datacentres and fibre assets separately which are owned by the group's subsidiaries in the MEA markets and running separate processes for these infrastructure assets.

The telco group is likely to hive off its tower portfolios first, then followed by datacentres and lastly fibre assets, sources said.

For the towers carveout, the Qatari telecom giant is thought to be working with a financial adviser which was mandated between Q2 and Q3 this year. Multiple sources said Morgan Stanley could be involved.

Sources added that Ooredoo has recently engaged a consultancy firm to help with the process, signalling the carveout could start soon.

The tower assets to be considered would include those owned by its mobile subsidiaries in Qatar, Kuwait, Oman, Iraq, Algeria, Tunisia, while tower assets in Palestine, Indonesia and Myanmar will be excluded, one source added.

The group is said to have around 20,000 towers in the MEA markets, two sources told TMT Finance, with one source saying the tower assets to be carved out could worth "several billion euros".

Ooredoo is considering options on the tower carveout which could be conducted through a sale-and-leaseback arrangement; and if the telco group proceeds with that arrangement, it could try selling its towers portfolio in one sale process rather than selling the towers market by market, according to one source.

Another source cautioned that such a sale arrangement would make it harder to divest assets, given there are only a few players that have the appetite to take over the assets in one purchase.

Meanwhile the telco group is also evaluating options for a datacentres carveout in MEA and looking to hire advisers, sources added.

The spinoff of the tower assets could be inspired by the recent telecom operators' tower transactions in Asia such as Telstra's towers carveout and Singtel's towers sale in Australia, which saw a huge interest from global investors, and both sales were wrapped up swiftly, therefore, the telco group is likely to prioritise the tower carveout first, sources commented.

Ooredoo's financial performance, leverage

The infra carveout comes as Ooredoo reported in H1 2021 revenue of QAR 14.5bn (US$3.98bn) showing an increase of 3% year-on-year (5% excluding foreign currencies impact) mainly driven by growth in Qatar, Indonesia, and Tunisia. EBITDA was QAR 6.4bn (US$1.76bn) growing at 7% and at 10% excluding FX impact, with an EBITDA margin of 44%. Net profit was reported negative QAR 956m (US$262.6m) due to impairments of QAR 2.34bn (US$642.86m), mainly from Ooredoo Myanmar, which was partially offset by profit from the sale and leaseback of Indosat Ooredoo's tower assets (QAR 1bn). Excluding the one offs and FX impact, net profit increased by 52%.

The group's free cash flow of QAR 2.75bn (US$755.5m) showed a 24% improvement due to increased EBITDA and reduced capex, which was 6% lower yoy at QAR 1.97bn (US$541.2m) and represented 14% of the revenue. Capex breakdown shows the majority was spent in Indonesia (38% of the total) – the group's largest market in terms of customers (51%), followed by Qatar (15% of total capex) and Oman (14%).

Net debt/EBITDA ratio was down to 1.6x (vs 1.8x yoy) with net debt reduced by 7% yoy to QAR 23.3bn supported by the Indosat Ooredoo tower sale and was at the lower end of the board guidance between 1.5 and 2.5 times with the current bank covenant of 4 times. The next large debt maturities are coming up in 2023 and include US$1bn in bonds and US$555m in loans.

Ooredoo has a market cap of QAR 23.1bn (US$6.35bn) and currently trading at around 3.7 times EV/EBITDA, according to TMT Finance analytics.

Ooredoo assets sale, MNO merger in Asia

Ooredoo's potential infrastructure assets sale follows an exclusive report by TMT Finance in mid-January this year, which revealed that Ooredoo group was exploring options for its telecom tower assets with a carveout deal tipped to be underway.

At that time, the potential tower spin-off was also tipped to turn into an even bigger carveout deal, with one source mentioning that market rumours are also circulating that Ooredoo may also be considering carving out its datacentre and other infrastructure assets alongside the telecom towers.

However, the infrastructure assets carveout in MEA may have been delayed by the telco group's move in Asia, as Ooredoo was hoping its Indonesian mobile unit would progress on various projects first including a tower asset sale and a merger with a rival, sources previously told TMT Finance.

In late March this year, Ooredoo's Indonesian subsidiary Indosat [IDX: ISAT] hived off 4,200 towers to DigitalBridge-backed Edgepoint Infrastructure for US$750m in a sale-and-leaseback deal.

Ooredoo has also made progress with CK Hutchison Holdings [HKG: 0001] on the merger of their respective Indonesian subsidiaries – in mid-September this year, the two parties signed definitive agreements for the merger of Indosat and Hutchison 3 Indonesia. The proposed merger was initially announced in late December 2020.

It is not the first time that Ooredoo has considers options for its MEA tower assets. TMT Finance exclusively reported in early 2020 that Ooredoo Oman, which owns around 2,000 towers, was looking into a sale and leaseback of its infrastructure.

Ooredoo did not respond to a request for comment, while Morgan Stanley declined to comment.