TPG Telecom announces $3b capital reduction, flags policy to increase dividends
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More news: Shares in TPG Telecom fell in afternoon trade after the company announced a $3 billion capital reduction as part of a broader capital management plan using the proceeds of its asset sale to Vocus.
At 12:44pm AEST, TPG shares had slipped 1.8% to $5.42.
S&P Global Ratings assigned a ‘BBB’ long term issuer credit rating to TPG with a negative outlook based on “near-term execution risks associated with TPG’s various balance sheet management initiatives” which will be key to maintaining a debt-to-EBITDA ratio below 2.75x.
They expect TPG will be able to repay about $2.4 billion of bank debt while returning $3 billion to its shareholders through a capital reduction.
The S&P analysts also expect operating margins to improve due to having a leaner structure following the asset sale, with an EBITDA margin of 30% to 33% forecast over the next two years.
TPG Telecom announces $3b capital reduction, flags policy to increase dividends
The news: TPG Telecom has announced plans to invest $3 billion accrued from its asset sale to Vocus Group in a share capital reduction as part of a broader capital management plan. The telecommunications company also updated market guidance for the financial year ending on 31 December 2025.
The numbers: TPG generated $4.7 billion in net cash proceeds from its sale of its infrastructure assets and enterprise, government and wholesale fixed business to Vocus. Of this, $3 billion will be committed to a capital reduction at a proportional rate of up to $1.61 per share. Shares will not be cancelled or consolidated.
This will include a $688 million reinvestment plan intended to provide minority shareholders the option to re-invest their proceeds from the capital reduction plan.
Total debt repayment of up to $2.4 billion will also be delivered, assuming the full reinvestment plan is taken up. This will target a reduction in bank borrowings worth $1.7 billion.
TPG is also targeting an 18 cents per share dividend for financial year 2025, the same as the previous year, with the intention to increase the dividend in subsequent years. The telco is also guiding pro forma EBITDA to be between $1,605 million and $1,655 million.
On a statutory basis, FY25 EBITDA is expected to be about $35 million higher than the pro forma basis because new commercial arrangements are included for only five months.
Pro forma cash capital expenditure, excluding spectrum payments, to be approximately $790 million. This includes $20 million of investment for the development of low earth-orbit satellites.
The context: TPG CEO and managing director Iñaki Berroeta said the capital management plan reflects the company’s strong financial position and “the conviction we have in TPG’s growth strategy and competitive position”.
He said the Vocus transaction has positioned the company “to compete as a lean, mobile-led integrated telco with an attractive long-term cost structure for accessing fixed network infrastructure”.
He also flagged that the company has doubled its mobile network coverage over the last year.
