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Post Market Wrap | Spark New Zealand establish separate subsidiary to own 1263 mobile phone tower assets



This Post Market Wrap is presented by KOSEC – Kodari Securities

  • Spark TowerCo to assume financial responsibility for 10-year future infrastructure build programme  
  • Spark New Zealand to focus on network and spectrum services and other active operating assets that drive market competitiveness 
  • Spark TowerCo separation optimises Spark capital structure and supports long term shareholder value accretion.

Spark New Zealand Limited (‘Spark‘ or the ‘Group‘), formerly Telecom New Zealand, is the country’s largest telecommunications and digital services provider, providing mobile and broadband services across New Zealand. Spark employs 5000 people, servicing consumers, business and government, through 24 regional business hubs and 67 retail stores. Spark’s comprehensive service range covers mobile, broadband, cloud and digital services as well as entertainment. The Company’s infrastructure supports 2.4 million mobile connections and reaches 98 percent of New Zealanders through 1500 mobile sites and 18 data centres. 

Spark TowerCo  

Spark New Zealand has appointed Forsyth Barr and Jarden to undertake an engagement process to assess the appetite for institutional investors to subscribe capital to its infrastructure subsidiary, Spark TowerCo.    

This follows a detailed review of Spark’s capital-intensive future infrastructure needs. The review also focused on the Group’s existing infrastructure portfolio, comprising 1500 passive mobile tower assets. Spark has an ambitious infrastructure build programme ahead to support New Zealand’s increasing data needs and new technologies like 5G, and ultimately 6G. This future build programme will require many smaller sites, closer to the end customer, and greater overall densification. Spark have concluded that infrastructure assets like mobile phone towers do not provide a competitive advantage in the telecommunications business. However, a specialist infrastructure focus on passive mobile phone tower assets does support ongoing service innovation, and efficiency, by reducing costs and increasing speed to market for these infrastructure build programmes.  

The issue for Spark is how to finance this infrastructure build programme in the most capital-efficient way.

Spark consider the optimal capital solution is to hive off 1263 of its 1500 mobile phone towers into the subsidiary, Spark TowerCo. This infrastructure owner subsidiary has natural appeal to risk-averse investors with a focus on critical infrastructure assets that generate dependable, recurrent, long term cash flows. Mobile phone towers are ideally suited to investors seeking capital stable returns from privileged assets under long dated contracts with low credit risk counterparties such as Spark. 

A key outcome for Spark shareholders is that the substantial investment necessary to modernise its mobile network and improve mobile coverage will be taken up by income-conscious investors who have an appetite for these passive, infrastructure assets. This enables Spark shareholders to optimise their capital returns by focusing on active assets that drive competitiveness and deliver higher margins. These assets are the core network and radio equipment assets that sit on the phone towers and offer differential service levels to that provided by Spark’s competitors, such as Vodaphone.   

The Spark TowerCo proposal is similar to the Telstra InfraCo Towers proposal announced several weeks ago. InfraCo Towers will own and operate Telstra’s mobile phone tower assets. The investor demand and resultant market valuations for these Telstra assets should be a useful guide for prospective Spark TowerCo investors.

Image: File

Looking Ahead 

Like TelstraSpark understand the fundamental investment principle that a business doesn’t need to own an asset, in order to exploit it. Separating capital intensive, low risk assets into a separately owned vehicle, with exclusive ‘right of use’ provisions, enhances existing Spark shareholder returns by optimising the use of equity capital. 

Spark New Zealand has given Spark TowerCo a 10-year commitment to a comprehensive new tower site build out programme. This is an equally positive outcome for Spark New Zealand shareholders, because it relieves Spark shareholders of equity dilution by not having to contribute substantial fresh capital to passive assets that cannot deliver the superior returns on equity derived from operating assets.

Spark understands that the future is digital as it experiences strong demand from NZ businesses and consumers seeking to digitise and transform their telecommunication needs. This trend is driving demand for Spark’s infrastructure assets. 

The ability for Spark to use and operate these infrastructure assets without incurring a substantial capital expenditure burden is positive for Spark shareholder value accretion over the long term.

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

"Michael Kodari is one of the world's most consistent, top performing investor. A philanthropist and one of the prominent experts of the financial markets, he has been referred to as ‘the brightest 21st century entrepreneur in wealth management' by CNBC Asia and featured on Forbes. Featured on TV as the "Money Expert", on the weekly Sunday program "Elevator Pitch", he is recognised internationally by governments as he was the guest of honour for the event "Inside China's Future", chosen by the Chinese government from the funds management industry, attended by industry leaders, when they arrived in Sydney Australia, on April 2014. Michael and George Soros were the only two financiers in the world invited and chosen by the Chinese government to provide advice, and their expertise on Chinese government asset allocation offshore. With a strong background in funds management and stockbroking, Michael has worked with some of the most successful investors and consulted to leading financial institutions. He was the youngest person ever to appear on the expert panel for Fox, Sky News Business Channel at the age of 25 where he demonstrated his skillset across a 3 year period forming the most consistent track record and getting all his predictions right over that period. Michael writes for key financial publications, is regularly interviewed by various media and conducts conferences around the world."

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Tech layoffs reach their highest point in over 20 years



There have been over 130,000 layoffs across the technology sector in the last five months

The technology sector was billed as the most exciting industry to work in.

Big offices, big dreams, big money were all part of the parcel for many companies attracting staff.

As many organisations caught onto the momentum of the pandemic, the same energy has not been particularly met on the other side.

Thousands of workers have since been laid off as the good times stopped rolling.

In fact, the technology sector’s layoffs are the highest since the dotcom bubble burst 22 years ago.

The BT Group is one of the latest companies cutting staff.

Fifty-five thousand have lost their jobs as part of a corporate restructure.

CEO Philip Jansen will freeze his £1.1 million salary until he retires, according to reports from Sky News.

The ground is also shifting as artificial intelligence takes hold and the economy worsens.

BT Group said it is laying off 11,000 staff because of the increased capacity for artificial intelligence in the workplace.

At the same time, companies like Apple and Goldman Sachs are among those restricting or banning the use of tools like ChatGPT amid privacy or data concerns.

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Big tech crackdown on employees using ChatGPT



Apple and Samsung are among companies restricting or banning the use of ChatGPT

Some of the world’s largest technology companies, including Apple and Amazon have banned or restricted OpenAI’s ChatGPT.

The tool relies on artificial intelligence to produce responses to prompts entered by users.

However, major brands remain concerned around the privacy risks because of the data ChatGPT uses to improve its accuracy.

Samsung has previously reported employees unintentionally leaking confidential internal source code and meeting recordings through ChatGPT.

Meanwhile, Apple has banned the web-platform over concerns surrounding data leaks.

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Can Linda Yaccarino save Twitter’s falling ad sales?



Linda Yaccarino has officially taken over as Chief Executive Officer at Twitter

Linda Yaccarino was once the head of NBC Universal’s advertising and partnerships team.

Her appointment follows a Twitter poll where Musk asked users to vote on whether he should resign.

At the time, 57.5 per cent voted ‘yes’.

Twitter is undergoing a transformation, including addressing concerns around rising hate speech and disinformation on the platform.

Mr Musk said Yaccarino is the perfect person for the job.

“I think Linda’s going to do a great job running Twitter. I’ll provide guidance on technology development.

“Twitter has released more changes in the last six months than it has in the last six years.”

Twitter said it has taken down over 6 million pieces of content in the first half of 2022, before the platform was acquired over by billionaire Elon Musk.

Benjamin Powers is a technology reporter at The Messenger, who said the platform has some issues to address.

“It’s unclear how much he’ll [Musk] be stepping back.”

The New York Times reports advertising revenue attracted US$88 million from 1 April to the first week of May—a decrease of 59 per cent from a year earlier.

“I think the big problem is revenue. The pullback is that they’ve lost about 58 per cent of advertising revenue, which is huge for a company like Twitter.

“The subscription business, which involves getting a blue check, you pay $8 a month, really hasn’t kept up with that dynamic,” he said.

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