Telefonica and Vodafone change strategy to its ‘joint venture’ of telecommunications towers in the United Kingdom. The two operators have resorted to a group of banks to raise up to 600 million euros with which to support the company’s operations. Until now, both had come with their own funds through loans. The Spanish group, which has 7,000 locations distributed throughout the country, put the ‘For Sale’ sign just two years ago to 50% of this alliance after the operation with American Tower and Telxius, although it has not been reached for now no agreement.
As Telefónica has informed its investors, during the first quarter up to 599 million euros of bank debt were raised to Cornerstone. At the end of the quarter just over 200 million euros had been recorded on its balance sheet, which is the part that corresponded to him based on his 50% in the ‘joint venture’. Until now, the loans for the operation of the tower manager had been made directly from both operators. Just a year ago, the latest available data, there were almost 430 million euros (363 million pounds) of that financing alive.
This 50% subsidiary is housed within the merged entity of O2 and Virgin Media in the UK, so the related financial debt would not be consolidated in the balance sheet of the group chaired by José María Álvarez-Pallete. Closing financial debt in currencies other than the euro is not an exception for the Spanish. In recent quarters they have done something similar in Latin America, with the aim of protecting themselves a little more regarding possible fluctuations and instability in the countries. This liability denominated in Latin American currencies skyrocketed last year to represent more than a quarter of the group’s total.
Cornerstone was created in 2012. Both telecoms transferred all their towers in the country to the joint venture. Since then, assets have been incorporated. In the last twelve months, more than 350 have been transferred. Today there are some 14,500 locations in the country. At the beginning of 2021, before the merger of O2 (Telefónica) and Virgin Media was formalized, a partners agreement was signed with which both gave each other full freedom to partially or totally sell their respective percentages in the company. Some time later, Telefónica hired Goldman Sachs to divest and find a buyer. However, eight months after there has been no movement.
To the valuations at which transactions were closed, such as that of the Telxius towers to American Tower or the IPO of Vantage Towers (the infrastructure arm of Vodafone, where its 50% of Cornerstone is housed), the valuation would far exceed 1.2 billion. Around 2,000 million were shuffled. Today, as explained by the Spanish operator, the “optionality” is maintained on these assets. In the last four years, the appetite for infrastructure investment fund towers, pension funds and independent managers such as Cellnex has not stopped growing.
This subsidiary basically provides services to both operators who pay for the rental and maintenance of the towers and the equipment linked to them. Between April 2021 and March 2022, the company recorded total revenues of 510 million euros, with an adjusted gross operating result (Ebitda) of just over 130 million. This allowed distribute the first dividend to both parties at the end of last March. Total it was 36 million.
This 50% is the only major asset of relevant towers that are still unsold in Telefónica’s portfolio. At the beginning of 2021, the operator agreed with American Tower to transfer almost 31,000 locations in Europe and Latin America to American Tower for 7,700 million after a process in which Cellnex also participated. On the infrastructure side, it decided to keep under its control within the perimeter of Telxius (where it has Pontegadea as an ally) the submarine cable, after not receiving offers that set a sufficient value. Now it is trying to incorporate a financial partner to acquire 40% of a division to deploy fiber in rural areas in Spain.