M1 is set to unlock value from S$580 million worth of its network assets, while Keppel DC Reit will invest a total of S$89.7 million into bonds and preference shares of the telco's newly incorporated unit, M1 Network (NetCo).

In a joint statement on Thursday (Oct 14) night, Keppel DC Reit and the telco announced they have inked agreements for a proposed investment by the real estate investment trust (Reit) into NetCo.

NetCo will acquire the telco's mobile, fixed and fibre assets for about S$580 million, or the assets' net book value, through an asset transfer agreement.

And under a 15-year network services agreement, M1 and its mobile virtual network operators will use NetCo's network capacity, while the telco handles the day-to-day operation and maintenance of the network assets as well as the capex works.

The proposed transactions are subject to regulatory approvals and approval by Keppel DC Reit unitholders, and are expected to be completed by the end of this year.

The finalised agreements came after the parties signed a non-binding term sheet, announced in April, to establish the special purpose vehicle to house the assets.

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M1 is jointly owned by Keppel Corp and Singapore Press Holdings, which publishes The Business Times.

Manjot Singh Mann, chief executive officer (CEO) of the telco, said that the proposed realisation of value from M1's network assets is part of the Keppel group's asset monetisation strategy and asset-light business model under its Vision 2030.

"When completed, this will unlock value from M1's existing network assets, enhance M1's ability to fund its growth initiatives and accelerate its aspirations as Singapore's first digital network operator," he added.

Anthea Lee, CEO of Keppel DC Reit's manager, noted that the proposed investment is aligned with its strategy to provide its unitholders with regular and stable distributions.

The deal will also strengthen the Reit's income resilience, allow it to benefit from further diversification in income streams and create a stronger platform for acquisition growth via better access to capital and debt markets, Lee said.

NetCo will fund the acquisition with up to S$493 million in external financing and by issuing S$88.7 million of unsubordinated bonds, bearing interest at 9.17 per cent per annum, and S$1 million in preference shares.

Keppel DC Reit or its wholly-owned subsidiaries will subscribe to the bonds, while the Reit's subsidiary KDCR Singapore 2 will subscribe to the preference shares. In return, Keppel DC Reit will receive S$11 million, comprising both principal and interest, each year for 15 years.

The proposed investment in the NetCo bonds and preference shares is expected to be accretive to Keppel DC Reit's distribution per unit (DPU), providing a long-term stable cash flow for 15 years, according to the joint statement.

M1 and the Reit will have equal representation on the board of NetCo.

Units of Keppel DC Reit advanced 1.3 per cent or S$0.03 to close at S$2.39, while Keppel Corp shares finished 2.1 per cent or S$0.11 higher at S$5.41, before the announcements were made.

READ MORE: 

• Keppel DC Reit, M1 to create special purpose vehicle to house M1 network assets

• Can telcos do more than sit on their assets?