Spark sells cell towers for $900m to Canadian outfit, analysts rub hands at possible capital return

Photo / File

Spark has sold 70 per cent of its cell tower network to the Ontario Teachers' Pension Plan Board in a $900 million cash deal.

The telco's shares were up 1.53 per cent to $1.97 in early trading as the NZX50 opened down 0.6 per cent after US markets again closed in the red.

Analysts expect the deal to finally lead to a bump in the telco's long-static dividend - and say even a modest increase in the payout could be a catalyst for Spark's shares to tick up.

The sale followed market rumours the NZ Super Fund was kicking the tyres.

And the fund could yet prove a player in this infrastructure segment, with Vodafone NZ still assessing offers for its own cell tower network in a process where first-found bids close on Friday.

Reports across the Tasman had said Spark could raise $1 billion or more from a 70 per cent sale, based on similar deals by Telstra and Opus last year.

But the overall market has cooled since those deals.

Spark never attached any figure to the sale, but CFO Stefan Knight said the 1500 towers' book value of around $100m was not an indicator of its commercial value.

Source / Spark

Spark sold 1263 of its cellsite sites. It has around 1500 on its network, with the balance tied up in the public-private Rural Broadband Initiative.

The transaction valued TowerCo at $1.175 billion.

For Spark investors, the successfully-concluded sale could mean a bump in the telco's dividend, which has been flat at 25cps for seven years, or a share buy-back.

Forsyth Barr said in an earlier research note: "We would expect some capital release should the announced part divestment of the TowerCo be successful."

TowerCo is the name of the subsidiary Spark created ahead of the sale, and in which it will retain a holding of 30 per cent.

And ForBarr analysts Aaron Ibbotson and Matt Montgomerie said: "A return to even modest dividend growth could be a meaningful positive catalyst for the stock."

This morning, Spark chairwoman Justine Smyth dropped a heavy hint that some kind of capital return was on the way, saying the telco would release an updated capital management policy at its full-year results on August 24.

The Ontario Teachers' Pension Plan Board is responsible for administering pensions for school teachers from Canada's most populous and wealthy province. Photo / 123RF

"When assessing the most appropriate use of proceeds Spark will consider three key pillars – maximising returns to shareholders, investment in future growth, and maintaining financial flexibility through an appropriate investment-grade debt rating," Smyth said.

On the flipside, Spark will lose a share of TowerCo profits.

In April, when it announced the sale, Spark said TowerCo would be on track for operating profit of about $35m in 2023 "with a strong growth profile over the next 10 years".

What the deal means for consumers

Spark said it would be business as usual for consumers. The firm stresses it only sold the passive assets of its cell towers - the towers themselves and land and resource rights.

It will continue to own and upgrade the electronics on the towers, and to hold its spectrum rights.

The telco has negotiated access to the cell towers under a 15-year deal and had a commitment from "TowerCo" to build 670 more towers, CEO Jolie Hodson said.

A spokeswoman said the cost of leasing back access to the towers could not be disclosed because it was commercially sensitive, but indicated it would be even-stevens once savings were factored in.

"From a financial perspective, the impact to Spark in FY23 will be minimal. Spark will no longer have the maintenance costs and overheads related to this asset portfolio, which will also lead to lower interest costs. These savings will be offset by an increase in lease costs," the spokeswoman said. Spark reported $1.38b net debt at the end of the first half.

Spark would still determine how its mobile network was developed, including where and when capacity investments occurred, with TowerCo then designing and deploying these build programmes, Hodson said.

The cell tower deal is subject to Overseas Investment Office approval.

Spark shares closed Monday at $4.90. The stock is down 0.31 per cent for the year.

The Ontario Teachers' Pension Plan Board is responsible for administering pensions for school teachers from Canada's most populous and wealthy province.