This Post Market Wrap is presented by KOSEC – Kodari Securities
- Legal restructuring formalizes separate ownership of infrastructure assets in new entities
- Restructuring Creates Option to Monetize Value Embedded in Preferred Infrastructure Assets
- Strong global demand exists for mobile tower assets at attractive valuations
- Creation of Telstra International, with a focus on submarine cables
- Global demand for high-quality telecommunications infrastructure assets supports long-term growth in shareholder value.
Legal restructuring of Telstra
Telstra is on track to complete its legal restructuring during 2022, which will see the creation of a new parent entity, known as Telstra Group Limited. Telstra shareholders will receive one new Telstra Group Limited share for each of their existing Telstra Corporation Limited shares. The legal restructuring will result in transfers of assets and liabilities between different Group entities. The transfers will be effected by a Scheme of Arrangement, which requires Court approval before the changes can be implemented.
The restructuring is much more than a variation of the Telstra name; it is a fundamental shift that responds to a rapidly changing telecommunications industry driven by digitization, analytics, artificial intelligence and related technology networks, while unlocking the inherent value of Telstra’s preferred assets . These critical assets include the towers, conduits, fiber, data centres, undersea cables and exchanges that support Australia’s main telecommunications network. Restructuring is a complex process and the most significant corporate change since privatization.
A key outcome for shareholders is that the restructuring should result in a higher overall market value being attributed to the Group by improving the visibility and returns of core fixed assets with monopoly style characteristics and value. Indeed, Telstra’s infrastructure assets have identifiable, contracted, long-term, recurring and low-risk cash flows. These assets, on a stand-alone basis, managed autonomously by a separate management group, are expected to unlock shareholder value over time. Although not explicitly stated by Telstra management, the legal and structural separation of major monopoly-style assets provides an option for sale or separation ASX list of these assets. Given their reliable cash flows and low risk profiles, compared to other service-oriented parts of the business, a stand-alone entity comprising these assets is likely to command a higher valuation by global investors. .
Four autonomous business units
Once in place, Telstra’s legal structure will consist of four main operating entities:
- Fixed InfraCo
- InfraCo Towers
- Telstra International.
InfraCo Fixed will own and operate Telstra’s physical infrastructure assets. These assets include conduits, fiber, data centers and exchanges.
InfraCo Towers will own and operate Telstra’s mobile tower assets. It is these assets that are of great interest to the market, given the strong demand and attractive valuations for this type of high-quality infrastructure.
ServeCo will maintain Telstra’s focus on products and services, including radio access network and spectrum assets that are essential to the group’s mission for mobile coverage and network superiority.
Telstra International will be established as a separate subsidiary within the group, with a focus on submarine cables.
Inter-company agreements have been created between the infrastructure owners (InfraCo Fixed and InfraCo Towers) and ServeCo that support sustainable profits for each of these entities and preserve shareholder value at the Group level.
The terms of the legal restructuring, once approved by the Court, will be put to a shareholder vote to ratify the Scheme of Arrangement. The Scheme Booklet outlining the terms of the restructuring is expected to be made available to shareholders in September 2022. Depending on the date of the shareholders’ meeting to vote on the restructuring, the exchange for new shares of Telstra Group Limited is expected to take place from by the end of October. 2022.
For now, investors are focusing less on the current state of the business and more on Telstra’s good position for the future. The digital economy is the future and its reliance on a reliable and technologically superior telecommunications platform is fundamental to the dynamism and productivity of the Australian economy.
Telstra’s legal and physical restructuring is fit for the times and with the rising value of infrastructure assets globally, the group soon to be renamed Telstra Group Limited, is well placed to drive shareholder value on the long term.
This Post Market Wrap is presented by Kodari Titleswritten by Michael Kodari, CEO of KOSEC.