Remgro in talks to offload Dark Fibre

Remgro is in talks to sell broadband provider Dark Fibre Africa to a company owned by Nippon Telegraph and Telephone of Japan, according to three people familiar with the matter.

Remgro, which owns 51.9% of the business, and investment partner New GX Capital were seeking as much as R10bn for the asset, said the people, who asked not to be identified as the talks are private.

The potential buyer was Internet Solutions, a unit of Nippon-owned IT services provider Dimension Data, they said. For Remgro, the cash injection could be used to repay debt and fund future acquisitions, said one of the people.

The acquisition of Remgro’s stake would give Internet Solutions access to as much as 10,000km of fibre networks, which will help the telecommunications provider extend broadband access in Johannesburg, Cape Town and Durban.

Dark Fibre is SA’s largest fibre-network company after Neotel, which was itself taken over by Econet Wireless Global affiliate Liquid Telecommunications in 2016 for R6.5bn.

Neither Remgro nor Dark Fibre could comment on market speculation, spokesmen for both companies said.

Internet Solutions has a “long-term strategic partnership” with Dark Fibre and the company “will continue to explore opportunities” to pursue its business strategy, spokesman Mayur Soni said.

For the six months to December, Dark Fibre reported earnings before interest, taxes, depreciation and amortisation (ebitda) of R495m and profit by that measure was forecast to top the R1bn mark for the year, said two of the people.

The deal, which was still being negotiated, valued Dark Fibre at as much as 10 times ebitda, said the people.

The firm owns a fibre network in Pretoria and has been expanding into more than 20 smaller cities.

The proposed transaction involving Cell C, Blue Label and Net1 seems like a great opportunity for the three groups to bulk up and, in Cell C’s case, trim back on debt. It will provide Blue Label and Net1 with a platform to grow their market for all manner of services while providing Cell C with the financial muscle to compete with the two local juggernauts.

For some time now, Net1 CEO Serge Belamant has been looking to create a platform that would make his company less reliant on business from the South African Social Security Agency (Sassa) contract. The pressure to look beyond Sassa stems not just from its pending termination, but also from the clampdown on selling financial products to grant beneficiaries.

So the planned tie-up looks like a positive development for all concerned. Except for one thing, the part of the transaction where the competition authorities get to interrogate whatever takes their fancy. Whatever takes their fancy is referred to in the Competition Act as public interest issues.

If we’ve learnt anything over the past few months it’s that there is considerable public interest in anything to do with social grants and unsecured lending. Can you imagine the list of people who will want to intervene in the Competition Tribunal’s consideration of this transaction? The list might even include the likes of the Black Sash and the National Credit Regulator. But first the economic development minister will have a close look to see what dramatic headline-grabbing undertakings he can secure from the merging parties.

This deal probably won’t take as long as the Coca-Cola restructuring took to get through the competition authorities, but it’s likely to ensure social grants and unsecured lending remain in the spotlight for a while.

Meanwhile, Social Development Minister Bathabile Dlamini summarily firing an adviser must surely remind the Constitutional Court who is in charge in that department.

Speculation that Internet Solutions is set to buy fibre-optic specialist Dark Fibre Africa is intriguing. Investment giant Remgro, which owns 50.9% of Dark Fibre via the unlisted CIV Holdings, recently raised its stake in a rights issue. Remgro CEO Jannie Durand also seems enamoured with its prospects, forecasting doubledigit growth. Then again, if the R10bn price tag bandied about is true, Remgro probably won’t have too big an issue with making a profitable exit.

At the end of December, Remgro valued its majority stake at R3.1bn, making it its biggest holding in its infrastructure hub. Dark Fibre is a top performer among IT unlisted investments. At last count it had annual revenue growth of 13.5% to R1.2bn with ebitda coming in at R861m. More impressive was that its annuity income grew 21%, meaning it generates nearly R90m a month in annuities.

The book value of the fibreoptic network is more than R6bn, and the future value of the annuity contract base is more than R10bn.

Another factor supporting the sale of Dark Fibre is that the investment is small in its R150bn investment portfolio.

Perhaps raising about R5bn from the sale will set up Remgro to strongly back its core investments in seeking out new opportunities. Remgro also prefers sizeable cash piles as insurance against dividend payments in lean(er) times.