REG - Digital 9 Infrastr. - Divestment of Aqua Comms for net proceeds of $48m

Digital 9 InfrastructureAnnouncement

17/01/2025 12:45

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RNS Number : 8135T  Digital 9 Infrastructure PLC  17 January 2025

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE UK'S
MARKET ABUSE REGULATION. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, SUCH
INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN

 

 

17 January 2025

 

DIGITAL 9 INFRASTRUCTURE PLC

 

("D9" or the "Company" and, together with its subsidiaries, the "Group")

 

Divestment of Aqua Comms for net proceeds of $48m (c.£40m)

 

The Board, advised by Goldman Sachs International, announces that D9 has
signed a binding agreement with EXA Infrastructure(1), a portfolio company of
funds advised and/or managed by I Squared Capital ("EXA") for the divestment
of the Atlantic and Irish Sea subsea fibre business, Aqua Comms (the
"Transaction").  This follows the recent divestment by the Company of EMIC-1
announced on 31 December 2024.  The Transaction is subject to
multi-jurisdictional regulatory approvals, including competition & merger
clearance, which are expected to take approximately 12 months.  Under the
terms of the Transaction and a completion accounts mechanism, D9 will continue
to manage Aqua Comms and will benefit from any interim distributions that
occur between signing and completion, with the final Transaction price
dependent on the balance sheet at completion.

 

The equity value of the Transaction is $54m, representing a 28% discount to
the valuation of $75m as at 30 June 2024.  After deduction of $5.4m
transaction costs, the net proceeds, based on the current balance sheet, would
be $48m, representing a 36% discount (equating to c. 2.6p per share) to the
valuation incorporated in the NAV as at 30 June 2024.  The Aqua Comms
valuation reported to the market as at 31 December 2023 was $283m.  The $208m
write down of the Aqua Comms valuation to $75m as at 30 June 2024 principally
reflected the inability to fund the Asian growth projects as well as the other
factors set out below.  It also reflected the indicative interest received
pursuant to the sales process for Aqua Comms at the time of 30 June 2024 NAV
publication.  Since then, the market backdrop for selling Aqua Comms has
softened as further reflected in the Transaction price achieved.

 

Taking into account the combined subsea business (i.e. including EMIC-1 at
$49.6m), the discount to the Company's 30 June 2024 valuation of these
investments, would be 21% (c. 2.6p per share) pre-transaction costs and 28%
(c. 3.3p per share) post-transaction costs.

 

The Board recognises that the equity value of the Aqua Comms transaction
represents a material discount to the 30 June 2024 valuation and has been
advised that delaying a sale is unlikely to result in a materially higher
price within the timescale of the wind-down and carries significant
uncertainty.  Initiated by the previous Board, the sale is the product of a
thorough 9-month competitive auction process conducted by Goldman Sachs
International.

 

The Aqua Comms business has been severely impacted by numerous factors since
the Company's initial investment, including an inability to deliver on its
intended global growth strategy and ongoing price compression across the
global subsea fibre market, especially in the Atlantic. Key contributing
factors include:

 

(i)         Asian growth projects: Inability to capitalise on
accretive expansion plans into Asia, and to restrictions under the Group's
Revolving Credit Facility ("RCF") covenants resulting in these projects not
being capable of being funded (meaning pipeline projects historically valued
by the Company could not be delivered);

(ii)         Margin compression: Overbuild of subsea cable capacity in
all markets, including the Atlantic market, where despite rapidly growing
demand, build-out is outpacing demand growth and increasingly compressing
margins.  This has been driven by hyper-scalers and technological
improvements that have led to a consistent c. 15% per annum decline in pricing
over the past 5 years. This decline is expected to persist meaning that any
extended hold period by the Company would have presented a high risk of
further value erosion for shareholders;

(iii)     EMIC-1: The indefinite delay to the project due to ongoing
conflicts in the Red Sea (meaning no foreseeable opportunity for capital
appreciation or earnings growth from EMIC-1 which could be realised as part of
combined sale with Aqua Comms); and

(iv)      M&A market conditions: The shift in the rate environment,
coupled with macro-economic and geopolitical volatility, has led to a
reduction in transaction activity across infrastructure and private equity.
 This has contributed to a reduction in the buyer universe for this asset and
impacted the pricing secured.

 

InfraRed Capital Partners ("InfraRed") has independently performed a bottom-up
evaluation of the Aqua Comms business to validate the terms offered by EXA.
 The evaluation considered points (i) - (iv) above by: removing Asian growth
projects from the pipeline; acknowledging margin compression in the Atlantic
market (and consequent revision of terminal value assumptions); removing any
capital appreciation or earnings growth on EMIC-1; and revising the discount
rate to reflect current market conditions.  The conclusion reached was that
the Transaction represents fair value for Aqua Comms (post-divestment of
EMIC-1), with the alternative of holding the business over the medium-term
being a higher risk option for the Company and its shareholders.

 

As reported on the recent EMIC-1 disposal, the transaction costs are
predominantly an allocation of fees payable on the completion of the Company's
Subsea cable assets, which were committed to by the previous Board at the
commencement of the sales process in early 2024.  These fees are contingent
on the completion of the Transaction.

 

Once received, the proceeds (net of transaction costs) of the Aqua Comms and
EMIC-1 transactions will be used to repay any balance remaining on the RCF. As
announced on 31 December 2024, the Company is discussing options with the RCF
lenders, to extend the remaining balance of the RCF beyond the current
maturity date in March 2025.  Incremental proceeds over and above the RCF
balance will be returned to shareholders in due course, along with proceeds
from other potential value realisations and optimisations the Company is
progressing in tandem.

 

Eric Sanderson, Chairman of Digital 9 Infrastructure plc, commented: "While
the pricing outcome for Aqua Comms is extremely disappointing and less than
might have been expected for the Company, a complete and far-reaching auction
process has been run over a period of nine months, to fully market test the
value of this business. Given the current market conditions and business
specific factors, we are confident this Transaction represents the best option
for shareholders in the context of the orderly wind-down."

 

ENDS.

 

Contacts

 Digital 9 Infrastructure plc                                 via FTI Consulting

 Eric Sanderson
 InfraRed Capital Partners Limited                           +44 (0) 207 484 1751

 James O'Halloran

 Mohammed Zaheer
 Panmure Liberum Limited (Financial Adviser to the Company)  +44 (0) 203 100 2222

 Chris Clarke

 Darren Vickers
 J.P. Morgan Cazenove (Corporate Broker)                     +44 (0) 20 7742 4000

 William Simmonds

 Jérémie Birnbaum
 FTI Consulting (Communications Adviser)                     dgi9@fticonsulting.com (mailto:dgi9@fticonsulting.com)

 Mitch Barltrop                                              +44 (0) 7807 296 032

 Maxime Lopes                                                +44 (0) 7890 896 777
 Goldman Sachs International (Financial Adviser on Aqua Comms)

 Alexandre Lucas                                                                              +44 (0) 20 7774 1000

 Owain Evans

 Fabrice Francois

 

LEI Code: 213800OQLX64UNS38U92

 

The person responsible for arranging the release of this announcement on
behalf of the Company is Helen Richardson, Company Secretary.

 

About Digital 9 Infrastructure plc

 

Digital 9 Infrastructure plc (DGI9) is an investment trust listed on the
London Stock Exchange and a constituent of the FTSE All-Share, with the ticker
DGI9. The Company's investment objective is to undertake a Managed wind-down
of the Company and realise all existing assets in the Company's portfolio in
an orderly manner. For more information, please visit w
(https://www.d9infrastructure.comw) ww.d9infrastructure.com.

 

About InfraRed Capital Partners (Investment Manager to D9)

 

The Investment Manager to D9 is InfraRed Capital Partners Limited ("InfraRed")
which has successfully invested in infrastructure projects since 1997.
InfraRed is a leading international investment manager, operating worldwide
from offices in London, New York, Seoul, Madrid and Sydney and managing equity
capital in multiple private and listed funds, primarily for institutional
investors across the globe. InfraRed is authorised and regulated by the
Financial Conduct Authority.

The infrastructure investment team at InfraRed consists of over 100 investment
professionals, all with an infrastructure investment background and a broad
range of relevant skills, including private equity, structured finance,
construction, renewable energy and facilities management.

InfraRed implements best-in-class practices to underpin asset management and
investment decisions, promotes ethical behaviour and has established community
engagement initiatives to support good causes in the wider community. InfraRed
is a signatory of the Principles of Responsible Investment.

Further details can be found on InfraRed's website www.ircp.com
(http://www.ircp.com/) .

 (1)About EXA Infrastructure

 

EXA Infrastructure is a dedicated digital infrastructure platform operating
throughout Europe, connecting North America and Asia via the Middle East with
over 20 years of experience of building networks.

 

Important Notices

 

Neither Goldman Sachs International ("GSI") nor its affiliates, nor their
respective partners, directors, officers, employees or agents are responsible
to anyone other than D9 for providing the protections afforded to clients of
GSI or for providing advice in connection with the transaction described in
this announcement or for any other matters referred to herein.

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