SINGAPORE (July 17): NetLink NBN Trust, which owns and operates the ducts, manholes, fibre cables and central offices that form the Nationwide Broadband Network, is seeking a listing on the Singapore Exchange.

The trust will issue 2.9 billion units at 81 cents each, raising $2.3 billion. If an overallotment option is exercised in full, the amount raised will go up to $2.4 billion.

Only 185 million units will be made available to the public, with the remaining 2.7 billion units offered by way of an international placement.

At 81 cents, and assuming the overallotment option is not exercised, the units will have an annualised yield of 5.43% for the forecast period from Aug 1, 2017 to March 31, 2018 and 5.73% for the projection year ending March 31, 2019. That is lower than what nearly all the other business trusts currently yield.

<hr/>See: Are business trusts good for yield?<hr/>

https://s3-ap-southeast-1.amazonaws.com/siteimages-editor/NetLink%20Trust%20Tong.JPG

Tong Yew Heng, CEO of trustee-manager NetLink NBN Management, says NetLink NBN Trust has a “unique business model, a resilient one, because our revenue is highly predictable”.

NetLink NBN Trust’s initial portfolio will comprise 100% of NetLink Trust, which gets 77% of its revenue from connecting and installing fibre services. Another 10% comes from servicing ducts and manholes, under long-term agreements with Singapore Telecommunications.

Co-location revenue from operators that want to host their equipment on the fibre network makes up 5%. And central office revenue, paid by Singtel to lease space and equipment at NetLink Trust’s central office, makes up 5%.

NetLink Trust intends to distribute 90% of its distributable income to NetLink NBN Trust, which will in turn distribute 100% of cash available for distribution on a semi-annual basis.

The Info-communications Media Development Authority (IMDA) sets out the prices and some terms for connection fees, contracts and wholesale agreements for fibre services. There is little risk of the regulator’s changing prices in the short term, according to Tong. “We do expect the regulatory framework to be stable. It is highly unlikely to change.”

NetLink NBN Trust will use the IPO proceeds for the acquisition of NetLink Trust from Singtel and to pay off $1.1 billion owed under a facility agreement with Singtel. The proceeds will also fund the purchase of 27,000 lead-in ducts from Singtel as well as equity issue expenses and other costs.

Should the overallotment option be exercised, the additional proceeds will be used for capital expenditure and general purposes. Does NetLink NBN Trust harbour any overseas ambitions? Tong says the trust’s immediate focus for growth will remain in Singapore.

“The growth is driven by fibre connections, which can be residential, non-residential and NBAP. Across all three areas, we expect growth that is fairly healthy,” Tong says.

NBAPs, short for non-building address points, can be used by traffic lights or sensors. Tong thinks it is possible that some residential properties will require two fibres within a few years.

“There is a new building code under consultation in Singapore, which will require developers to put two fibre points into new homes,” he explains. “In the future, there are expectations for households to use more than two fibre connections. There is interest in the IoT [Internet of Things], and some of these can be implemented in households.”

Meanwhile, NetLink Trust currently has a market share of just 32% in the non-residential market and it is projected to grow over time.

“Telcos that do not have fibre infrastructure will use ours when they secure a customer in the CBD area. Also, outside of the CBD areas, we are the only provider of fibre services,” says Tong. “In the NBAP segment, with the rollout of smart nation applications and IoT sensors across the island, there is potential for us to provide more fibre connections to support these activities.”

The listing of NetLink NBN Trust is part of a regulatory requirement, following the government’s 2008 selection of OpenNet to run the passive infrastructure for the NBN.

OpenNet was a consortium made up of Axia NetMedia Corp with a 30% stake, Singtel (30%), Singapore Press Holdings (25%) and SP Telecommunications (15%).

In July 2011, Singtel established NetLink Trust to hold the passive non-fibre infrastructure assets used to support OpenNet’s deployment. Singtel was to divest at least 75% of its holdings in NetLink Trust by April 2014.

In August 2013, the shareholders of the OpenNet consortium agreed to divest all their shares to NetLink Trust. The deadline for Singtel to divest its holdings in NetLink Trust was extended to April 2018 to allow additional time to integrate the operations of NetLink Trust and OpenNet.

Following the IPO, Singtel will own 24.99% of NetLink NBN Trust. The offer for NetLink NBN Trust closes at noon on July 17. Trading is expected to commence at 3pm on July 19.

NetLink NBN Trust offers investors steady distributions, but with limited growth

NetLink NBN Trust offers investors steady distributions, but with limited growth

Related Stories

Highlights

US Stocks will bottom once Fed signals shift

Related Stories

Nio to begin trading on the SGX on May 20

Nio receives eligibility to list from SGX for secondary listing

5E Resources taps IPO for expansion