Why OPIC Invested US$250mn in Apollo Towers Myanmar

Apollo Towers Myanmar was introduced to Overseas Private Investment Corporation (OPIC) through its initial backers TPG and Tillman Global Holdings. With a purpose to build out towers in an emerging market, and with multinational operator Telenor as its key customer, Apollo had a good story that piqued the interest of OPIC. Further due diligence also uncovered many other details that financiers such as OPIC need and like to see. Read on to find out the challenges, opportunities, and success factors in securing debt financing – and fundraising in general for emerging markets telecom infrastructure.

In 2010, when Myanmar held historic elections that would end over 50 years of military rule, it was a country that had endured decades of isolation. Less than three percent of the population had mobile phones and this lack of connectivity limited not only access to services and information, but the country’s potential for economic growth.

Today, mobile penetration is closer to 75 percent, surpassing what had been considered extremely optimistic targets form the Government of Myanmar, and making this long-isolated country a stand out success story in rapid adoption of advanced technology. Myanmar’s ability to swiftly construct a network of telecom towers and dramatically improve connectivity is a testament to the speed at which progress can occur in emerging markets when demand for a product or service is strong, local governments are motivated, and financing is available.

TowerXchange: Could you please tell us about a little bit about OPIC?

OPIC is the U.S. Government’s development finance institution. It mobilises private capital to help address critical development challenges and in doing so, advances U.S. foreign policy and national security priorities. Because OPIC works with the U.S. private sector, it helps U.S. businesses gain footholds in emerging markets, catalysing revenues, jobs, and growth opportunities both at home and abroad. OPIC achieves its mission by providing investors with financing, political risk insurance, and support for private equity investment funds, when commercial funding cannot be obtained elsewhere.

Established as an agency of the U.S. Government in 1971, OPIC operates on a self-sustaining basis at no net cost to American taxpayers.

All OPIC projects adhere to high environmental and social standards and respect human rights, including worker’s rights. By mandating high standards, OPIC aims to raise the industry and regional standards of the countries where it funds projects. OPIC services are available for new and expanding business enterprises in more than 160 countries worldwide.

TowerXchange: What is OPIC’s experience in telecom investments?

At OPIC we’ve just reached our US$1bn portfolio in telecom deals and we’re quite excited about that. We have deals across the world, with the Apollo Towers financing in Myanmar as one of the most recent ones. We’ve also recently done deals in India, Colombia, and Kenya. We have deals in every continent at this point. Ranges from telecom deals to data storage, to subsea cable to interesting and innovative mobile healthcare type of projects.

TowerXchange: And what is the range of investments?

Our range of investments is also quite large, everything from US$250k to US$250mn, which is an incredible range.

OPIC has three main products. We provide financing and political risk insurance directly to projects, like the Apollo Towers project, and we also have another product where OPIC provides debt to private equity funds. A lot of our telecom deals and successes have come through working with private equity funds that specialize in in the telecom. Some of those private equity funds have the ability to do the smaller projects, whereas direct financing is usually better suited to larger projects.

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1. Development angle that aligned with OPIC’s financing mandates

2. Reputation of initial investors TPG and Tillman Global Holdings

3. Link to US-based entities via TPG and Tillman Global Holdings

4. Strong management team with proven industry experience

5. Market opportunity in Myanmar with accelerated mobile uptake

6. Management team’s ability to tackle challenges creatively

7. Adherence to high labor standards

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TowerXchange: Can you share the process behind how OPIC goes about choosing a project?

OPIC’s main objective is to advance global development in a way that will benefit people in developing countries. In a lot of our telecom/technology projects, the main thing we look for is projects helping to bring greater connectivity to people that don’t already have it or improve connectivity where it is weak. We’re looking at projects like the Apollo Towers one, where they are building towers in a country where there wasn’t a cell network before and enabling people to connect for the first time. Or we’re looking at projects like the one we recently committed in India, Tikona Digital Networks, where they are expanding Internet access to people who didn’t have it before. We also work on projects like data centers and subsea cables where the objective is to significantly improve the quality of service available in the country. That’s really the first thing we look at, the development story.

TowerXchange: What happens after that?

We still function like a bank. We screen projects for the development story and connection to the U.S., but after that we’re really looking for the creditworthiness of the project. Everything that a bank would do in terms of credit due diligence, that’s what we do; looking through their financial performance, operational performance, making sure that the management team is strong and experienced. And then we have a series of credit and policy approvals that we would go through same as a bank would, and we negotiate the loan.

TowerXchange: Could you tell us about your background Julia, how you got involved with OPIC, and the focus of your role?

I came to OPIC two years ago and started in late 2014. What really got me interested in OPIC was the development finance model.  Right out of college I joined the U.S. Peace Corps, in Morocco and saw firsthand the power of the private sector to push forward development in a really focused and efficient way. When I came out of grad school I wanted to find a place that could combine the development and private sector and luckily enough I was able to find a job here at OPIC, which has been a great fit for me. My focus here has been both on telecom projects and SME banking projects.

TowerXchange: What most excites about your job?

We get to see projects where they’re going to change the countries where they take place. You get to work on a project like Apollo where they’re building a cell phone network that will enable people get access to a cell phone for the first time. You can’t really get better than that! And we do that all over the world. We are active in over 100 countries at the moment and everywhere we go, that’s our objective: to encourage economic development with the objective of improving the lives of the people in the countries where we work.

TowerXchange: How did the partnership with Apollo come about? How did you “meet”?

This was an interesting story for us. In Myanmar, all US foreign investments had to register their investment with the US Embassy. When TPG and Tillman Global Holdings first invested in the project, they went to the US Embassy and registered the investment; the Foreign Commercial Service happened to mention OPIC’s name and connected us, and the rest is history.

TowerXchange: What attracted OPIC to the opportunity? What did you like about it?

What caught my eye other than development story, which was very important to us, was the strength of the management team: they really had a lot of experience in developing towers and building telecom networks in challenging places.

The strength of the investors in the project was also important. TPG is of course a very well known firm so we knew they had well vetted the investment. They had two investors to start, and a third Myanmar Investments International Limited (MIL) came in later.

Another thing that was really exciting about the project was the market opportunity. There was a study that was done that showed the rate they thought mobile phones would be adopted in the country, and we’ve seen it outstrip that every quarter. That was also a great plus for us in the project.

TowerXchange: What were you most concerned about?

Of course Myanmar is a newly opened country so there are issues we had to work through. One of the early challenges we came across was land registration. There’s very little way to get clear title to land, or register security interest in a piece of land. The government is still working on this process, trying to update the registrar system so that it’s easier for foreign investors to take security in physical assets.

We also took a long time evaluating the foreign exchange situation in the country. The project did benefit from dealing with customers who were mainly large international players, such as Telenor, and a lot of MSAs are at least indexed in dollars, so that helped, but there was still the transfer and convertibility risk.

TowerXchange: And what is the status of the land registry system now?

There was a large political transition in Myanmar in 2015, when Aung San Suu Kyi, the National Democratic leader was elected. There has been a bit of lull in trying to work on some of these issues during the political transition. Now the new administration has settled in and people have been appointed, we’re hopeful that they’ll really dig into it and address this issue. It’s a complex issue that has a lot of stakeholders so it takes a while to get it right.

TowerXchange: What might usually “make or break” a project like this?

The one thing that would’ve been an immediate deal breaker for us would’ve been any violation of the US sanctions policy, we take our customer policy very seriously.

Here at OPIC we are also very much focused on making sure projects are done with the correct environmental, social, and labor standards. Apollo was really great in working with us and making sure that the project respected human rights including worker rights.  The nice thing also was Telenor was the first in the market and Telenor is very serious about the quality of labor on their projects. They actually very closely spot check all of the tower companies, not just Apollo, and publish their findings. We have really appreciated that and found that to be a positive development for the market.

TowerXchange: What gave you confidence to go ahead with it? You mentioned the development story, market opportunity, and strength of existing investors and management team. Anything else?

Yes, all of that. And I think the company’s ability to come up with creative solutions to challenges as they came up. That really gave us confidence they were able to deal with things as they arose. Specifically, the actual registration of the loan agreement, getting the stamp duty paid was quite a challenge, and the company was very resourceful in how they dealt with the situation.

TowerXchange: What are your thoughts on the state of industry in Myanmar right now? What do you foresee by year end 2016? For 2017?

We’re really looking forward to the final confirmation of a fourth operator. A lot of new towercos have entered the market and we’re interested to see how Telenor and Ooredoo will distribute next orders and move forward in the build out. In terms of implications, we think all of the towercos are looking forward to the fourth operator increasing their co-location ratios.

TowerXchange: Do you think the market can sustain a fourth MNO?

Yes, I think we’ve seen such an incredible demand for mobile services that they probably can sustain a fourth operator. And the more competition will hopefully be good news for consumers in terms of pricing. Which works really well for OPIC’s objective, since it will make telecommunications services even more accessible.

TowerXchange: What’s the sense of priorities for the operators in Myanmar? SIM penetration is pretty good right now, with reports around 70-80%.

I think the operators, conjecturing from the outside, will focus on continuing to expand their geographic scope to the more rural areas of the country and continuing to reinforce the cities, since there’s been such a high demand for data, and maybe more than they expected in the original roll out.