3i Infrastructure plc (LON: 3IN), a listed infrastructure investment company, today announced that it has agreed to acquire a 100% stake in Global Cloud Xchange (GCX), a subsea cable owner and operator, for $512m. GCX is being sold primarily by a group of former bondholders, who now own the equity of the company, as a result of a recent bankruptcy restructuring (see below). Specifically, the sellers of GCX are Värde Partners, Bardin Hill Investment Partners, and Portsea Asset Management.

Finally, 3i Infrastructure anticipates closing the transaction in the middle of 2022.

Global Cloud Xchange (GCX) – 3i Infrastructure Takes Control

GCX’s infrastructure comprises 42.7k miles (68.7k kilometers) across five subsea cable systems which span 46 countries. Primarily, GCX focuses on the Europe-Asia and Intra-Asia subsea cable routes. Additionally, GCX operates terrestrial fiber networks, through ownership and lease arrangements, to provide onwards connectivity.

The majority of GCX’s subsea cable capacity became ready for service (RFS) between 1997 and 2006. Therefore, the company’s systems have low capacity (typically <3 Tbps, excluding FA-1) and a low number of fiber pairs (primarily 2 to 6). As a reference point, subsea cables sustain a useful life of ~25 years, which means that some of the company’s older subsea cables (e.g., FEA) may be decommissioned in the near future.

Subsea Cables

Presently, GCX’s five subsea cable systems are as follows:

FLAG Atlantic (FA-1)

FA-1 is a trans-Atlantic subsea cable between London, Paris, and New York with onward connectivity to Washington, D.C., and Frankfurt. Overall, the FA-1 subsea cable traverses 9.0k miles (14.5k kilometers).

FLAG Atlantic (FA-1) Global Cloud Xchange (GCX) Subsea Cable Map
FALCON

FALCON is a Middle East and Egypt-Asia subsea cable connecting from Suez, Egypt to Colombo, Sri Lanka, with a full loop around the Persian Gulf. Overall, the FALCON subsea cable traverses 7.7k miles (12.4k kilometers).

FALCON Global Cloud Xchange (GCX) Subsea Cable Map
FLAG Europe Asia (FEA)

FEA is a one of the longest subsea cable systems globally, connecting Europe to the Middle East and Asia. Overall, the FEA subsea cable traverses 17.4k miles (28.0k kilometers).

FLAG Europe Asia (FEA) Global Cloud Xchange (GCX) Subsea Cable Map
FLAG North Asian Loop (FNAL)

FNAL is an intra-Asia subsea cable providing diverse connectivity between Hong Kong, South Korea, Taiwan, and Japan. Overall, the FNAL subsea cable traverses 5.9k miles (9.5k kilometers).

FLAG North Asian Loop (FNAL) Global Cloud Xchange (GCX) Subsea Cable Map
HAWK

HAWK is a Europe-Middle East and Egypt subsea cable, providing connectivity between London, Paris, Frankfurt, Marseille, Cyprus, and Egypt. Overall, the HAWK subsea cable traverses 2.7k miles (4.3k kilometers).

HAWK Global Cloud Xchange (GCX) Subsea Cable Map

Services

Global Cloud Xchange (GCX) provides connectivity services through its network and infrastructure, which includes the following elements:

  • Infrastructure: integrates the subsea cable network and related backhaul, along with Pan European domestic fiber network, and data centers
  • Data Connectivity: sells bandwidth capacity on an indefeasible right of use (IRU) and lease contracts. Also, sells network connectivity services including international private line (IPL) and IP virtual private network (VPN)
  • Cloud: sells data center services including colocation services and data center access

As data is increasingly stored and shared via the cloud, GCX’s subsea cables enable data to flow between global hubs.

Customers

Global Cloud Xchange (GCX) serves demand from hyperscalers, telecommunications operators, over-the-top (OTT) media services, and enterprises. GCX notes that it has sought to expand its OTT relationships beyond Facebook, to sell bandwidth capacity to hyperscalers like Apple, Google, and Amazon.

Financials

During the 12-months ended June 30, 2021, Global Cloud Xchange (GCX) generated $274m of cash revenue, $66.8m of cash EBITDA, and $22.2m of recurring EBITDA.

Additionally, for the 12-months ending March 31, 2022, the company forecasts $275m to $300m of cash revenue, $70m to $85m of cash EBITDA, and $25m to $30m of recurring EBITDA.

Strategy

Strategically, 3i Infrastructure aims to increase the utilized capacity on GCX’s existing subsea cable routes. However, any indefeasible right of use (IRU) sales or lease-up will largely depend on GCX’s newer subsea cables, namely FALCON and HAWK. In contrast, capacity utilization on older and lower capacity systems such as FEA and FNAL will likely remain persistently low.

Beyond GCX’s existing subsea cables, 3i Infrastructure also intends to support the future growth of new routes and customers. An example of a new route would be GCX’s EAGLE subsea cable, which the company indicates is “coming soon”:

EAGLE Subsea Cable

Overall, the EAGLE subsea cable is a Europe-India-Hong Kong route which will traverse 10.3k miles (16.7k kilometers) upon completion. Previously, the EAGLE subsea cable project was indicated to cost $500m+, with GCX seeking to pre-sell most of the capacity on the network to reduce its capital contribution.

Management Team

Under 3i Infrastructure’s ownership, Global Cloud Xchange (GCX) will continue to be led by Carl Grivner as Chief Executive Officer. Previously, Grivner was the CEO of Colt Technology Services, a global enterprise and dark fiber provider.

Prior to Colt, he served in Singapore as CEO of Pacnet, directing the global strategy of the end-to-end communications service provider. Finally, Grivner has formerly held executive positions at XO Communications, Global Crossing, Worldport Communications, Cable & Wireless plc, Advanced Fiber Communications, Ameritech, and IBM.

Global Cloud Xchange (GCX) – Bankruptcy Process

Global Cloud Xchange (GCX) filed for Chapter 11 bankruptcy protection in September 2019 and fully exited bankruptcy on December 31, 2020. Specifically, GCX defaulted on its $350m of 7% bonds.

Through the bankruptcy process, GCX completed a debt-for-equity swap that reduced its outstanding debt by $150m. In turn, bondholders gained full ownership of the company from GCX’s prior owner, Reliance Communications Limited (RCOM).

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