Globe expects healthier balance sheet after sale of 7,000 towers

By Arjay L. Balinbin, Senior Reporter

GLOBE Telecom, Inc. anticipates future earnings to increase as a result of the expected cost savings from the sale of its over 7,000 towers, a company official said.

Globe expects that by selling the towers, it will spend less, especially on rent, than it did when it owned these towers.

“Its impact on the bottom line is highly dependent on colocation of the towers. The more colocation, the lower the lease rate we will pay,” Globe Vice-President for Financial Planning and Analysis Carlo C. Puno said in a statement to BusinessWorld on Friday.

“Additionally, this will also avoid future capex (capital expenditure) costs as the tower company will be in charge of retrofitting the towers,” he added.

He expects the company to have a healthier balance sheet, which will allow more flexibility to compete in the market “as well as get access to cheaper capital, both of which could potentially lead to an increase in earnings in the future.”

The Ayala-led company announced on Friday that it signed two sale and leaseback agreements for 5,709 telecom towers and related passive telecom infrastructure for over P71 billion.

It said 75% of the total proceeds will be used to fund capex to support ongoing network expansion and sustain network consistency and reliability scores.

Meanwhile, the balance of 25% will be earmarked to cover the company’s 2023 debt servicing requirements.

“The first portfolio being sold consists of 2,180 telecom towers in Luzon, which will be acquired by MIESCOR Infrastructure Development Corp. for a total consideration of P26 billion, and leased back to Globe for an initial period of 15 years,” Globe said in a statement.

The expected pre-tax transaction gain from the first portfolio will be P10.6 billion.

Meanwhile, the second portfolio consisting of 3,529 towers will be sold to Frontier Tower Associates Philippines, Inc. for P45 billion, and also leased back over an initial period of 15 years. Pre-tax gain will be P15 billion.

The company is in “advanced discussion” with another tower company for the sale and leaseback of an additional 1,350 telecom towers and related passive telecom infrastructure.

“This last portfolio is made up of towers located in Visayas and Mindanao. Globe expects to sign the sale and leaseback agreement with this tower company within the third quarter, with first closing happening within the fourth quarter of the year,” it said.

Sought for comment, Philstocks Financial Senior Research Analyst Japhet Louis O. Tantiangco said Globe’s tower sale is seen as a good move.

“In doing so, Globe is letting go of the expenses connected to the depreciation and maintenance of the said towers. There will be an increase in lease expenses. But overall, the move is still seen to lead to operational efficiency,” he said in a phone message.

“Also, the selling of towers gives Globe additional capital which it can use to expand its network and improve operations. Overall, Globe’s selling of its towers is seen to have a positive impact on its bottom line’s prospects, and possibly, even on its dividend prospects,” he added.

Globalinks Securities and Stocks, Inc. Head of Sales Trading Toby Allan C. Arce said Globe’s capital raising is credit-positive as its balance sheet could improve to become more aligned with an investment-grade profile.

“The telco is seeking shareholder approval to increase its capital stock, which may imply potential equity funding that could help fund capex,” he said in a phone message.

“Globe benefits from good funding access and strong shareholders, Singtel and Ayala. But it may face headwinds from increasing competition in mobile and a weaker position in fiber broadband. New mobile entrant DITO Telecommunity is investing to increase population coverage and could become a credible player in the medium term,” he added.

He noted that Globe’s EBITDA, or earnings before interest, taxes, depreciation, and amortization, may weaken further this year as capex stays high at over 50% of revenue.

“Although, there could be upside from potential equity funding and medium-term monetization of its digital assets.”

Globe saw its second-quarter attributable net income rise 5.3% to P6 billion from P5.7 billion in the same period last year.

Total revenues for the period increased 5% to P43.8 billion from P41.7 billion previously.

For the first half, its attributable net income climbed 51.5% to P19.7 billion from P13 billion in the same period in 2021. Total revenues for the period reached P87.3 billion, up 3.2% from P84.6 billion previously.

Globe Telecom shares closed 2.28% higher at P2,240 apiece on Friday.