EdgePoint Infrastructure, an independent tower company in Southeast Asia, which is a portfolio company of DigitalBridge, and edotco Group, a regional tower company in Asia, which is a 63%-owned subsidiary of Axiata Group, today announced an agreement to acquire 5,907 telecom towers and related passive telecom infrastructure from PLDT Inc, a telecommunications operator in the Philippines, for $1.47bn USD (77bn Philippine pesos). Specifically, PLDT through its subsidiaries, Smart Communications and Digitel Mobile Philippines, is executing the following transactions:
- EdgePoint Infrastructure: through its subsidiary Comworks Infratech Corporation, EdgePoint is acquiring 2,934 towers located across the Luzon Island group for $666m USD (35bn Philippine pesos)
- edotco Group: via its subsidiary ISOC edotco Towers, Inc., edotco is acquiring 2,973 towers located primarily in Luzon, Visayas, and Mindanao for $800m USD (42bn Philippine pesos)
Through these two transactions, PLDT’s Smart Communications is monetizing ~50% of its tower portfolio.
Post-transaction, PLDT’s two tower portfolios will generate ~$73m of EBITDA, which implies a valuation multiple of ~20x EV/EBITDA. Additionally, the transaction values PLDT’s 5,907 sites at $248k per tower.
Finally, closing of the transaction will be staggered, with a first closing in May 2022 and final closing by Q4 2022.
Transaction Overview – EdgePoint and edotco Buy PLDT’s Towers
PLDT’s Smart Communications is only selling its passive tower infrastructure to EdgePoint and edotco (TowerCos), while retaining ownership of its active infrastructure. Particularly, this infrastructure includes the following:
- Passive Infrastructure: tower steel structure, shelter, power equipment, and cooling systems
- Active Infrastructure: antennas, remote radios, microwave dishes, and fiber backhaul
Additionally, land/ground lease contracts will be assigned to the tower companies, EdgePoint and edotco.
Geographic and Site Type
Overall, PLDT’s 5,907 telecom towers are located in Metro Manila (18% of sites), Luzon excluding Metro Manila (49% of sites), Mindanao (17% of sites), and Visayas (16% of sites). Below is the geographic breakdown of the portfolios that EdgePoint and edotco are acquiring, including on an aggregate basis:
|Luzon ex. Metro Manila||72%||26%||49%|
Also, in terms of site type, PLDT’s 5,907 telecom towers are ground-based towers (81% of total) and rooftop sites (19% of total). Below is the site type breakdown of the portfolios that EdgePoint and edotco are acquiring, including on an aggregate basis:
PLDT’s Smart Communications, as an anchor tenant, has signed 10-year sale-and-leaseback agreements, in the form of master services agreements (MSAs), with EdgePoint Infrastructure and edotco. In turn, this leaseback will allow Smart Communications to continue using the towers, post-transaction. Additionally, beyond space, EdgePoint and edotco will provide operations and maintenance (O&M) services, as well as power to PLDT’s sites.
Overall, PLDT’s Smart Communications will pay a base rate of ~$1.9k USD (100k Philippine pesos) per tower, per month, to EdgePoint and edotco for their services. More precisely, this base rate comprises:
- Base Fee: ~$1.3k USD (70k Philippine pesos) per tower, per month, with no inflation escalators
- O&M Fee: ~$0.6k USD (30k Philippine pesos) per tower, per month. Also, the O&M Fee will have inflation escalators of up to 3% per annum
Notably, PLDT’s contractual payments will be in Philippine pesos, which leaves EdgePoint and edotco exposed to foreign exchange currency risk.
In addition to selling its existing towers, PLDT’s Smart Communications has agreed to new tower build commitments, with EdgePoint and edotco, for 1,500 towers in total “over the next few years”. Of this total, both EdgePoint and edotco will make a commitment for 750 towers under the following timeline:
- 500 to be built by 2025
- 250 to be built over the subsequent 5 years (i.e., through 2030)
PLDT and Smart Communications’ financial advisor was UBS.
EdgePoint Infrastructure – Overview
EdgePoint Infrastructure is owned by DigitalBridge’s private equity fund, DigitalBridge Partners II (DBP II), and the Abu Dhabi Investment Authority (ADIA), a sovereign wealth fund. Presently, EdgePoint has secured over 10k sites across Indonesia and Malaysia and its agreement with PLDT marks the company’s entry into the Philippines.
EdgePoint Philippines is a joint venture between EdgePoint Infrastructure and local partners SMS Global Technologies Inc (SMS-GT) and ComWorks Inc. Firstly, SMS-GT is a provider of site acquisition, power solutions, and tower construction in the Philippines. Secondly, ComWorks is a wholesaler of telecommunications services and mobile network equipment in the Philippines.
Importantly, PLDT’s tower sale brings EdgePoint Infrastructure’s total portfolio in Southeast Asia to 13k tower and distributed antenna system (DAS) sites across Indonesia, Malaysia, and the Philippines.
edotco Group – Overview
edotco Group manages over 54.0k towers across nine countries in Asia. The company is a 63%-owned subsidiary of Axiata Group (KLSE: AXIATA), a major telecom operator across Asia.
As of Q4 2021, edotco has a portfolio of 25 owned towers in the Philippines, which have a tenancy ratio of 1.12x, equating to 28 tenants with equipment on the company’s towers. As such, upon completion of its acquisition of PLDT’s towers, edotco Group will meaningfully grow its owned portfolio to 2,998 towers in the Philippines.
PLDT – Transaction Rationale
PLDT’s divestiture of its towers to EdgePoint and edotco has both immediate and ongoing rationale for its business.
PLDT’s sale of its towers for $1.47bn USD (77bn Philippine pesos) represents a significant premium over the asset’s book value which is $438m USD (23bn Philippine pesos), including capital expenditure commitments. In turn, this results in a meaningful pre-tax gain on disposal for PLDT of $1.05bn USD (55bn Philippine pesos).
Additionally, the transaction is expected to be ~10% accretive to PLDT’s earnings per share (EPS) from the first full-year post-closing.
Use of Proceeds
PLDT expects to allocate the proceeds from the sale of its towers to three primary uses:
- Deleverage: debt reduction of $524m USD (27.5bn Philippine pesos), which will bring PLDT’s net debt / EBITDA below 2.0x
- Network Investment: fund major cash requirements in 2022, which will avoid additional debt of up to $467m USD (24.5bn Philippine pesos)
- Capital Return: return of cash to shareholders, via a special dividend of up to $171m USD (9bn Philippine pesos)
PLDT’s sale of its towers will drive ongoing benefits to the company, as well as the Philippines as a whole, including:
- Operational and capital expenditure savings for Smart Communications
- Smart Communications’ customers having superior network quality and improved resilience, resulting from new tower builds
- Supports the goals of the Department of Information and Communications Technology (DICT), a division of the Philippine government, to improve tower density, which will lead to greater connectivity across the Philippines