Anthony Giret – Vodafone’s Vintage
Exciting news from Vodafone, a company we like and whose corporate hybrids we own, which has confirmed its intention to IPO its Vantage Towers unit before the end of March. This move should be positive for Vodafone’s credit profile – and for the bonds we own, as the disposal proceeds will not only be material but also mostly used to repay debt. Such news is music to a credit analyst’s ears, as it accelerates deleveraging towards the lower-end of management’s 2.5-3.0x net debt / EBITDA target. Vantage Towers is one of the largest tower infrastructure companies, and its IPO will surely be one of Europe’s largest this year based on expected market capitalization in the €11-15bn range.
Some detail: Vantage Towers encompasses nearly all of the group’s telecom towers in Europe. With over 80,000 sites across 10 countries. Vodafone plans to keep a large controlling share, and it is yet unknown how much of the capital will be floated and available for the public (probably 20-25%). Still, the European tower trade has been ongoing for some time now, having started with highly levered operators seeking cash to reduce debt in recent years, but more recently including higher-quality operators seeking to capture valuation arbitrage opportunities, manage capital needs, and improve returns. Vodafone is following in the steps of peers Altice and Telefonica, while Orange, and potentially Deutsche Telekom, could follow suit. For telecom companies, the rationale to dispose of a stake in their tower units has been twofold: i) for fundamentals reasons, as it helps drive organic growth, reduce costs, and opens the door to new strategic M&A, while sale proceeds may be used to reduce debt; ii) for technical reasons, because traditional telecom companies feel under-valued by the market, whereas tower companies such as Europe’s independent leader Cellnex enjoy booming valuations. Thus floating their tower unit could unlock “hidden” value and drive a re-rating of their shares.