2degrees says listing on NZX could 'accelerate growth' ahead of 5G launch

Thursday, 25 March 2021

2degrees is considering going public through a partial sale of the firm to sharemarket investors.

Fresh funds from a sharemarket float of 2degrees could accelerate the company’s growth, but its planned entry into the 5G market later this year doesn’t hinge on it, chief executive Mark Aue says.

2degrees announced on Thursday that it might list on the New Zealand and Australian stock exchanges through an initial public offering (IPO) in the second half of this year or early next year.

The company is the country’s third-largest telecommunications company, after Spark and Vodafone, with 1.6 million mobile connections and 130,000 broadband subscribers, and it has a staff of about 1000.

2degrees is currently majority owned by Trilogy International Partners, which is listed on the Toronto stock exchange.

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Trilogy would be looking to cash up some of its 73 per cent stake in 2degrees through the IPO to pay down debt, but Aue said Trilogy’s intention would be to retain a “significant” stake in the firm.

Aue said a partial IPO would open up a new source of funding for 2degrees, which it could use to accelerate its growth plans.

2degrees chief executive Mark Aue says “visibility” has been a challenge.

A “lack of visibility” had been a challenge for the business, he said.

“Because we are not listed here, people don’t understand the scale and size that 2degrees has grown to.”

How much fresh equity 2degrees might be likely to raise through an IPO remains unclear.

But Trilogy is likely to be hoping 2degrees’ strong market brand in New Zealand could see an IPO unlock more value than implied by Trilogy’s own share price.

A lead arranger has yet to be appointed for an IPO and Aue said any listing would be subject to “market conditions”.

2degrees has had to look for an alternative 5G partner after China’s Huawei gave up on trying to supply 5G equipment to New Zealand.

He indicated it was too soon to say whether 2degrees’ minority owner, Dutch investment company Tesbrit, would participate in the IPO or if only a part of Trilogy’s stake might float.

But he said both shareholders were interested.

2degrees faces an extra complication and potentially extra expense moving into 5G, as it has a strong technology partnership with China’s Huawei which has faced a de facto ban from supplying key 5G networking equipment to “five eyes” countries.

Huawei abandoned attempting to sell 5G equipment into New Zealand last year after running into certification obstacles from the Government Communications Security Bureau.

2degrees is expected to soon announce a different technology partner to supply it with 5G networking equipment.

New Zealand’s fourth-largest telco, Vocus NZ, could also be floated on the NZX despite a decision by the company's Australian-listed owner to accept a takeover offer for the entire business, reports suggest.

Vocus Group announced earlier this month that it was putting a planned IPO of Slingshot and Orcon owner Vocus NZ on hold after recommending shareholders accept an A$3.5 billion (NZ$3.7 billion) takeover offer from Macquarie Infrastructure and Real Assets (Mira).

But Vocus Group chief executive Kevin Russell told The Australian Financial Review he still thought the IPO would go ahead “at the right time”, probably during the second half of this year.

Technology Users Association chief executive Craig Young said it would be good news if 2degrees’ IPO went ahead.

“New Zealand ownership is always welcome as they are then focused on this market and users here,” he said.

It would also be good for the company to be listed on the NZX and for profits to be invested and remain in New Zealand, he said.

Aue said 2degrees was going from strength, despite the headwinds from Covid that had affected roaming revenues.

Trilogy reported on Thursday that 2degrees’ revenues rose 7 per cent to $549m in 2020, while its adjusted operating profit was up 5 per cent at $171m.

2degrees chairman Brad Horwitz said equity markets were strong globally, the valuations of telecommunications companies were attractive, and the New Zealand dollar was at a “multi-year high”.

“This compelling macro backdrop, combined with the resilience, scale and growth of the 2degrees business, suggests now is an opportune time for the shareholders of 2degrees to explore a partial listing of the business,” he said.