Telefonica is separating from its fiber business in Colombia and has agreed to sell a majority stake to KKR, reducing its debt by $ 200 million.
We knew it was gonna happen. Earlier this year, Telefonica sold fiber assets in Brazil and Chile through similar co-investment models and said there were more details about fiber in the pipeline of its Latin America operations.
And we might have guessed that KKR would be a likely investment partner. The investment group has taken a 60% stake in the Chilean fiber network business of Telefonica in February, a movement that the pair is reproducing in Colombia.
KKR will take a 60% stake in a new Colombian fiber company, while Telefonica will own the remaining 40% and bring its existing fiber assets into the country, pending regulatory approvals, of course. The new company will launch with a fiber-to-the-home (FTTH) network covering 1.2 million premises in 50 cities and municipalities, at the end of the first quarter, and 380,000 customers. It aims to reach 4.3 million locals in nearly 90 cities within three years.
“The agreement with KKR will accelerate the deployment of fiber optics in Colombia at an unprecedented rate, in a market that showed enormous potential last year,” said Alfonso Gómez Palacio, CEO of Spanish-speaking Telefónica Latin America.
The phone company also stressed that the new company will play its part in the government’s goal of improving connection speeds in Colombia and reaching 70% of connected households in the next 12 months.
But for Telefonica, this deal, like others it has negotiated in the region and elsewhere, is about more than expanding fiber optic connectivity. It’s about monetizing assets and reducing debt.
The new fiber business as a whole is valued at half a billion dollars – roughly 20 times the pro forma OIBDA (Telefonica’s preferred profit indicator) – Telefonica will therefore recover $ 300 million from KKR; $ 200 million is payable immediately and an additional $ 100 million is subject to performance levels.
“This new announcement is a further step in the path the company has charted in the region to ensure profitable growth, crystallize the value of its infrastructure and implement innovative and agile business models that improve return on invested capital” said Laura Abasolo, Managing Director of Finance, Control and Corporate Development of Telefónica SA and Director of Spanish-speaking Telefónica Latin America.
Like towers, fiber assets are popular with investors looking for predictable, long-term returns. These co-investment agreements sought by Telefonica – as well as the Chilean agreement with KKR, it has a 50/50 agreement with the Caisse de dépôt et placement du Québec (CDPQ) for FiBrasil, and also shares control of its business of German fiber Unsere Grüne Glasfaser with insurance group Allianz – allows it to maintain a foothold in the infrastructure market in the long term, while freeing up short-term liquidity.
It’s too early to call this a proven model for the Spanish operator, but it is starting to sound like a good idea.