Keppel DC REIT’s manager has finalised the agreement with M1 - initially announced in April - to form NetCo, a company that will acquire the network assets of M1 for $580 million. M1 sells its assets into NetCo (in return for $580 million). M1 will also inject $1 million into NetCo, in return for 100% share of ordinary shares of NetCo.
Keppel DC REIT will subscribe to $88.7 million of bonds for 15 years for which it will receive a coupon of 9.17% a year, or $11 million. The $11 million is calculated based on principal plus interest. Hence the full principal amount of $88.7 million would be repaid over each payment during the term of 15 years. The total principal and interest paid over 15 years would be $165.0 million.
In addition, Keppel DC REIT will subscribe to $1 million of preference shares which will give the REIT a 50% representation on NetCo’s board.
The remaining $493 million ($580 million plus $2 million less $88.7 million) will be funded by external borrowings.
In addition to the $88.7 million, there is an acquisition fee of $0.9 million, and other expenses of $1.8 million taking total cost to $92.4 million.
The bond subscription deed requires Keppel DC REIT’s unitholders’ approval as it is an interested party transaction.
The payment of the acquisition fee is also subject to unitholders’ approval at the EGM because Keppel DC REIT’s trust deed has to be amended to allow for such a one-off fee. Based on an issue price of $2.356 per acquisition fee unit, 0.4 million new units are likely to be issued.
In addition, the consent of Infocomm Media Development Authority of Singapore and the Monetary Authority of Singapore are also required.
The investment into NetCo would have boosted FY2020’s DPU of 9.17 cents by 3.8%, to 9.519 cents making the transaction DPU accretive. AUM would rise by 2.7% to $3.3 billion. Net asset value would remain unchanged.
Keppel DC REIT’s manager intends to finance the acquisition through external bank borrowings and the remaining cash proceeds (after debt repayment) from the divestment of iseek Data Centre.
Analysts and market observers had cited the acquisition of NetCo as a reason for Keppel DC REIT’s 14.3% decline this year. However on Oct 14, ahead of the details of NetCo’s acquisition, unit prices in Keppel DC REIT rebounded by 6 cents to end at $2.39. Keppel Corp is a likely beneficiary of the transaction as it will receive a cash infusion of $580 million. Its shares rose 11 cents on Oct 14, to close at $5.41.
