MetroFibre, Investec sign R2.5bn debt funding deal
Banking and wealth management group Investec has injected R2.5 billion debt funding into MetroFibre, to help the open access fibre network operatorstrengthen its fibre network rollout across SA.
The funding agreement, according to a statement, builds on an existing relationship that dates back to 2016, when MetroFibre approached Investec for its first round of debt financing.
The debt package complements the R1.5 billion equity raise in November last year, supported by new shareholder African Infrastructure Investment Managers together with current shareholders.
With the latest funding, MetroFibre says it is now poised for another phase of strong growth.
The Gauteng-based fibre infrastructure provider says it plans to densify its existing networks and reach an additional 300 000 residential homes across the country over the next three years.
The funding is expected to contribute greatly to South African citizens, it says, by providing wider access to Internet connectivity, which empowers people by allowing them to learn, join communities, build businesses and escape into entertainment.
“There’s a massive demand for fibre connectivity in many outlying regions,” says Wayne Edwards, MetroFibre financial director, highlighting the importance of the deal.
“Filling that gap makes sense not only from a business perspective, but also from a socio-economic upliftment standpoint. In a growing and fiercely competitive market, the timely funding arranged by Investec, together with our recent R1.5 billion funding raise, will enable us to take fibre to more individuals and more businesses, giving them the opportunity to participate in the globally connected economy.”
Debt financing occurs when a firm raises money for working capital or capital expenditures by selling debt instruments to individuals and/or institutional investors, according to Investopedia. Unlike equity financing where the lenders receive stock, debt financing must be paid back, often with interest.
MetroFibre is a South African-owned and managed open access fibre network and broadband fibre provider, based in Gauteng. Founded in 2010, the company owns and manages SA’s first globally compliant Carrier Ethernet 2.0 open access fibre network.
Apart from providing layer two services to hundreds of ISPs and telcos across the globe, MetroFibre also provides voice and data connectivity products in the enterprise space and to homes.
Investec says it identified an opportunity in the deal, as it arrives during a time when the explosion of the fibre-to-the-home trend runs parallel to an insatiable thirst for bandwidth in the corporate space.
As businesses migrate towards digital and cloud-based services – a structural shift that has momentum – their need for faster, stable Internet is rising, largely influenced by the COVID-19 pandemic.
“Debt funding is usually only possible once a company has a long, established track record. But we saw MetroFibre’s potential very early on and subsequently provided specialised capex funding, structured to promote their growth over time. That funding proved justified as MetroFibre’s growth accelerated meaningfully during 2018 and 2019,” says Laverne Chetty, Investec specialised finance consultant.
SA’s fibre market has reached a tipping point, as people are spending more time in their homes, which has drastically increased the demand for high-bandwidth Internet services, for the purposes of working-from-home, education and for entertainment – resulting in fibre going mainstream, according to MetroFibre.
In addition to the company’s fibre network in the retail market, it installs fibre infrastructure for businesses in the financial services sector.
“The fibre market moves quickly and we are immensely excited about taking the benefits of high-quality fibre connectivity to the country as a whole. And for that journey to be successful, having the right partners remains paramount. Reliable, ultra-high-speed fibre lines are critical to the operations of certain financial institutions. Our team has vast experience in delivering those kinds of networks,” notes Edwards.
MetroFibre’s shareholders include Sanlam, African Rainbow Capital (ARC), STOA Infra and Energy, and others.
In a virtual business update last week,ARC co-CEO Johan van Zyl said the COVID-19 pandemic resulted in MetroFibre exceeding its performance expectations.
In 2016, ARC acquired an 18.14% shareholding in the company.
“The national lockdown helped us, with the demand for Internet going up quite substantially and we’ve increased our capacity. We’ve completed the capital raise in that business and it boosted MetroFibre’s performance. In the initial year or two after our investment, we lagged in our business plan a little bit. But we have subsequently caught up substantially and we are way ahead,” said Van Zyl.