The thinking behind Helios Towers Nigeria’s successful bond issuance

Towercos in other markets, notably Asia, have frequently utilised the bond market to raise substantial capital. Helios Towers Nigeria (HTN) recently completed the first bond issuance by an African towerco. The successful bond issuance was three times oversubscribed, reflecting growing investor confidence in the application of the independent towerco business model to Africa, and enthusiasm for opportunities in the lucrative Nigerian telecom sector. To learn about the thinking behind HTN’s current capital structure, and the implications of the current wave of sale and leasebacks in Nigeria, TowerXchange spoke to HTN’s CFO Abulime Ehiagwina.

TowerXchange: Congratulations on the successful issuance of Africa’s first high yield bond issue - how was it received?

Our successful Bond issuance, which was oversubscribed, reflects the strength of Helios Towers Nigeria (HTN) as a pioneer and pace setter in the African Tower industry. It underscores the confidence of investors in the Nigerian economy and the bright prospects of infrastructure providers in Africa’s largest economy. It was a very pleasant outcome which was well received by HTN Stakeholders.

TowerXchange: What is it about telecom towers that makes them a good fit for the bond market?

Telecom tower companies generally have long term contracts with their customers and low churn. This provides stable cash flows except where a major customer develops severe liquidity issues or goes bust.

A key focus area of bond subscribers is assessing the credit worthiness of a business clientele. Bond holders need to be convinced your customers are resilient enough to honour their contracts in the long run. Risk assessment ratings by leading rating agencies provide a measure of comfort. Telecom towers’ intrinsic value grows as tenancy ratios increase, so over time the tower values appreciate based on the co-location ratios incremental cash flows. In a market not yet at saturation point, towers will always be attractive to bond investors.

TowerXchange: Tell us about HTN’s successful transition from an initial degree of focus on Nigeria’s CDMA operators, to an increasing focus on the GSM operators as tenants - and how important has that transition been in raising capital?

Our successful transition from a largely CDMA based clientele to global player GSM customers showed the resilience of HTN’s management and shareholders. Losing more than 50% of your revenues can be a very challenging experience for any company. This transition was also helped by the natural evolution of GSM companies. In the early years, telcos see coverage as a competitive advantage and try to get first mover advantage in as many cities as possible. Subsequent rollouts will focus on capacity rather than coverage needs. HTN’s towers were well positioned in urban areas to meet the requirements of GSM companies.

TowerXchange: Why did you choose to utilise the bond market as opposed to raising more capital from equity investors or debt?

A lot of factors are taken into consideration before arriving at an organisation’s optimum capital structure. In raising debt for a well structured company like HTN, bonds have an advantage of a fixed interest rate over the tenor. With loans, there is some level of payment volatility depending on the index. LIBOR is stable today but you can never quite predict what will happen three or four years down the line.

TowerXchange: Can you name-check the advisors who helped HTN with this landmark bond issue?

There were quite a few advisors, banks, law and accounting firms involved in the bond issue. Bank of America Merrill Lynch was the lead manager, sole book runner and ratings advisor.

TowerXchange: Finally, what impact do you forsee the sale of Etisalat, MTN and (eventually) Airtel’s Nigerian towers having on Helios Towers Nigeria, and how will this new capital reinforce your position in the Nigerian tower market?

The tower sale and leaseback by MNOs to towercos is timely and a welcome development. MNOs can now focus on their core business and allow specialist tower companies to focus on passive infrastructure provision. If HTN is successful, we will attain scale and improve the quality of service standards achieved by MNOs. Certainly some of the cash will get reinvested by telcos in furthering their rollout of active infrastructure 2G, 3G et cetera and the consumer can only be better off when towers are sold and leased back.