Mark meijer


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FTTH Conference 2013 Workshop Investors Day

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Mark meijer

  1. 1. Reggefiber Financing FttH in the Netherlands looking back and looking forward Investor Day, 19 February 2012, London, Mark Meijer, Manager Corporate & Project Finance Reggefiber Mark Meijer Manager Corporate Finance 1 | 20
  2. 2. Contents• Company Overview• Financing structure 2 | 20
  3. 3. History 3 | 20 ‘Regge’ river + Fiber = “Reggefiber”
  4. 4. AchtergrondProfile Reggefiber (1)•Founded in 2005 by the private investment company Reggeborgh•Reggefiber builds, owns, rents and operates passive (dark fiber) networks(FttH) in the Netherlands. I.e. Reggefiber is an Infrastructure asset•Since 19 December 2008 Reggefiber is a joint venture of Reggeborgh – KPNapproved by competition authority NMa and regulated by OPTA•Combination of KPN’s installed base of consumer clients with Reggefiber’sexperience in building and operating FttH networks•Current shareholding: KPN 51% - Reggeborgh 49% (joint control) 4 | 20
  5. 5. FttH value chain – Reggefiber is an Infra assetReggefiber active as pure passive network operator Consumers CONSERS Service providers Consumer broadband • Sells to consumers subscription packages • Deliver services to consumers SP SP SP SP SP SP € 40 – € 110 (triple play) • Communicate to consumers • Rents active connection to the home of each Wholesale agreements Wholesale agreements customer Wholesale broadband access Active Operators € 30 – € 40 (triple play) • Rent passive fiber for each home from the active KPN active passive operator when operator operator Service Provider sells a Netco service • Enables electronic traffic from home to SP ODF agreements ODF agreements ODF Access € 15,10 average (cap regulated: €18,84) Passive Operator Reggefiber • Builds, owns and Operator BV operates the passive fiber network (seller) • Delivers open access to active operators Management agreement Indicative monthly price per Homes Activated NEM BV (owner) 5 | 20
  6. 6. AchtergrondProfile Reggefiber (2)•Tariffs and non-discriminatory passive network access regulated by OPTA andNMa remedies, providing long term certainty•Line rental has been regulated by OPTA (maximum tariffs; CPI-indexed)•Reggefiber is well positioned to benefit from the high broadband penetration inthe Netherlands and the increasing demand for (symmetrical) bandwidth, themarket trends towards single access, the company’s extensive FttH experience,strong shareholders and the regulatory certainty•Balance Sheet total c. €1,6 bln ( of which c. €1,0 bln shareholders contribution)•Strongly growing business(financing need will translate into follow up debt investment opportunities) 6 | 20
  7. 7. AchtergrondProfile Reggefiber (3)Reggefiber Activities – ……growing at an increasing pace 7 | 20
  8. 8. All brands active on Reggefiber’s network 8 | 20
  9. 9. Contents• Company Overview• Financing structure 9 | 20
  10. 10. Key debt investment considerations 1. Regulated infra business with long term regulatory certainty 2. Strong JV rationale and shareholder support 3. Future proof broadband infrastructure that can deal with the exponentially growing demand for broadband 4. Reggefiber’s management team has extensive experience in the telecom sector and combines proven entrepreneurial skills with network construction experience and operational excellence 5. Relatively high barriers to entry as result of capital intensity 6. Open model; offering consumers choice; “clustering” marketing of different ISP’s; platform for new services; and thereby fuelling the uptake rate 10 | 20
  11. 11. Key debt investment considerations 7. Strong EBITDA margins around 80-82%. Lowest opex of existing telco infrastructures and predictable cost structure 8. Inflation resilient, stable, sticky and predictable cash flows 9. Limited technology risk and construction risk 10. “Hard” underlying network assets with strategic value that can be mortgaged under Dutch law 11. A number of banks (including EIB) have participated in several transactions 11 | 20
  12. 12. Current financing structure – Multiple ringfenced structures Reggefiber KPN BV Holding BV 49% 51% Reggefiber Group BV Reggefiber Reggefiber ttH BV (passive operator) New Projects Reggefiber Reggefiber Finance Holding Finance Holding Company 2 BV Company 1 BV NEM Subsidiary NEM Subsidiary NEM Subsidiary Active (network owner) (network owner) (network owner) Operators Ringfenced structure x Ringfenced structure 2 Ringfenced structure 1 (RF2) (RF1) Financing €250m Financing €285m Financing Debt Capital Markets EIB and Commercial EIB and Commercial Investors? banks banks 12 | 20
  13. 13. Looking back – key message 1• Each country is unique, which impacts the success and risks of the FttH business and its competitive position versus other infrastructures. Specifically for the Netherlands: • Three fixed networks: copper, coaxial cable, FttH • High existing broadband penetration of more than 90% • Densely populated country with FttH friendly soil conditions (favourable impact on capex) • Competive structure: two regionally divided mature cable companies with closed networks compete with the incumbent on copper and on FttH • ARPU on FttH-subscribers is significantly higher than the national average • Network assets registered at the Dutch land registry implying these can be mortgaged 13 | 20
  14. 14. Looking back – key message 2• Address the market risk (accept or mitigate); E.g. • Demand aggregation (pre-selling of a minimal number of subscriptions) before starting the construction of FttH in an area • Migrate existing customers from other infrastructures to FttH • Operational (conditional) off take guarantees • Could public parties or policy measures help to mitigate the market risk? E.g. in NL cost for education related to work can be deducted from your fiscal income. Equally why not a positive (fiscal) stimulus for broadband subscriptions that align with the goals of the Digital Agenda: 50% of European households should have subscriptions above 100Mbit/s. Lower or no VAT on these subscriptions? 14 | 20
  15. 15. Looking back – key message 3• “Fit” the debt product (so far for Reggefiber project finance from banks) • Ringfencing (operating separate companies in one company; each financing is a separate company) • Repayment to zero and increasing pricing • However repaying project financing loans on the one hand and having on the other hand the ambition to roll out further the FttH network in the remainder of the Netherland seems sub-optimal • Banks have limitations on their Balance Sheet (Basel 3, Total One Obligor, tenor). Reggefiber needs alternative long term funding sources 15 | 20
  16. 16. Looking back – key message 4• Is FttH really a project business or is FttH a continuous run rate business (compare to an utility like an energy network distribution company)? Nature of our FttH infra business: run rate business 16 | 20
  17. 17. Looking back and looking forward• The FttH roll out could be seen as a series of projects, however once completed it’s a regular mature company, which should ideally have a financing that reflects that maturity (i.e. it can have refinancing risk)• Classical project finance – with no refinancing risk – becomes suboptimal after the roll out• Shorter project financing maturities are not liked by banks (not all) as they find it difficult to assess the refinancing risk by a take out on the debt capital market• There is a need for a mature “Bridge-to-Bond” or “Bridge-to-EURO Private Placement” market for (non-)rated FttH financing• Using equity and bank funding for construction and the DCM-markets for the take out seems a logical model for Reggefiber’s debt funding.• It frees up capacity in the bank market and would give Reggefiber long term funding that fits the cashflow profile of the future roll out (funding diversification and ALM) 17 | 20
  18. 18. Looking forward – view on future debt funding Under consideration: •Bridge-to- Private 2nd Placement/Bond €250m Project Finance •(Project) Bond Closed issue e.g. on 1st September Project Finance 2012 1st •Whole Business €285m Project We are exploring DCM Secutirisation: funding as Reggefiber needs building a Finance diversification of long term secured debt Closed October funding sources platform 2010 18 | 20
  19. 19. Looking forward• There is a number of institutionals that do not have the credit assessment resources to do an in-depth credit assessment of a FttH project finance style transaction• Solvency 2 makes investing in unrated paper not attractive• There is a number of debt investors that are willing to look at unrated EURO Private Placement on FttH• A number of infrastructure debt funds has recently entered the market• Although a third bank project financing will be possible, we would like to find out where our sweet spot in the DCM-market is to make our debute in the future (funding diversification and ALM) 19 | 20
  20. 20. • Mark Meijer • Manager Corporate & ProjectQuestions? Finance • +31 621713722 • 20 | 20