Spark TowerCo
Spark New Zealand has appointed Forsyth Barr and Jarden to a commitment process to assess the appetite of institutional investors to invest in its infrastructure subsidiary, Spark TowerCo.
This follows a detailed review of Spark’s capital-intensive infrastructure needs. The review also focused on the Group’s existing infrastructure portfolio, which includes 1,500 passive mobile towers. Spark has an ambitious infrastructure plan in place to support New Zealand’s growing data needs and new technologies such as 5G and, ultimately, 6G. This future construction project will require many smaller sites, closer to the end customer and higher overall density. Spark has concluded that infrastructure assets such as mobile towers do not provide a competitive advantage to telecommunications companies. However, a specialized infrastructure focused on passive mobile towers supports continuous innovation and service efficiency, reducing costs and increasing market speed for these infrastructure projects.
The issue for Spark is how to finance this infrastructure project in the most cost-effective way.
Spark believes that the best capital solution is to install 1263 of its 1500 mobile towers at its Spark TowerCo subsidiary. This subsidiary owner of infrastructure has a natural appeal to risk-averse investors with an emphasis on critical infrastructure assets that generate reliable, recurring, long-term cash flows. Mobile towers are ideal for investors looking for stable returns on preferred assets based on long-term contracts with low-risk counterparties such as Spark.
A key result for Spark shareholders is that the significant investments required to modernize the mobile network and improve mobile coverage will be made by income-conscious investors who are eager for this passive infrastructure. This enables Spark shareholders to optimize their return on equity by focusing on competitive assets that drive competitiveness and offer higher profit margins. These components are the core network and radio equipment components found in telephone towers and offer different levels of service than those provided by Spark’s competitors, such as Vodaphone.
The Spark TowerCo proposal is similar to the Telstra InfraCo Towers proposal announced a few weeks ago. InfraCo Towers will own and operate the assets of the Telstra mobile phone tower. Investor demand and the consequent market valuations of these Telstra assets should be a useful guide for Spark TowerCo prospective investors.
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Look forward
Like Telstra, Spark understands the fundamental investment principle that a business does not need to own an asset in order to exploit it. The separation of capital-intensive and low-risk assets into a sole proprietorship, with exclusive provisions for the “right of use”, enhances the existing returns of Spark shareholders by optimizing the use of share capital. Spark New Zealand has given Spark TowerCo a 10-year commitment to a comprehensive new tower construction project. This is an equally positive outcome for New Zealand Spark shareholders, as it exempts Spark shareholders from equity impairment, as they do not need to contribute significant new capital to passive assets that cannot return the higher return on equity they derive. from operating assets. Spark understands that the future is digital, as it faces strong demand from New Zealand businesses and consumers seeking to digitize and transform their telecommunications needs. This trend is driving demand for Spark infrastructure. Spark’s ability to use and operate these infrastructure assets without incurring significant capital expenditure is positive for increasing Spark shareholders’ value in the long run. This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO of KOSEC.
