Control of State telecom infrastructure should draw in Minister
THE INTEREST shown by the Minister for Communications, Energy and Natural Resources in the ownership of Independent News and Media is commendable, but you would have to wonder if Pat Rabbitte might be better off focusing his efforts on Eircom right now.
While a possible change of control at INM may or may not have far-reaching implications for Irish democracy, the actual change of ownership taking place at Eircom will have a profound impact on Irish growth prospects.
Assuming the High Court approves the deal voted through by creditors last Friday, Eircom will shortly change hands for the fifth time.
Once again, it will have owners whose long-term interests are not aligned to the Government’s. The company will be owned by its lenders, a hodge-podge of financial institutions that have bought its bonds over the years. They are owed something in the region of €2.7 billion and are to write off some of that debt via a High Court examinership.
They are, apparently, reluctant owners, having taken over the company only after attempts to find a buyer failed. The presumption must be that none of the offers on the table was attractive to them and that they have decided to hold on for a bit and see if they can get a better deal further down the road.
It is reasonable idea given that the value of infrastructural assets is directly related to economic activity and, notwithstanding the current bout of euro turmoil, Ireland has returned to growth.
The bondholders have a five-year plan, which forms part of the scheme being put forward by the examiner, Michael McAteer of Grant Thornton. But what they don’t have is a chief executive – the incumbent Paul Donovan is stepping down – and, more pertinently, much appetite to invest more money with a view to the long-term return. Any investment will come from the company’s own resources.
It is quite surprising then that the examiner turned down an approach from Hutchison Whampoa, the Hong Kong conglomerate that owns the 3 mobile business here.
Hutchison offered €2 billion in cash for the business. Given the bondholders had already agreed to write down their debt to around €2.3 billion, a deal seemed very doable.
The details of the offer have not been disclosed and it was subject to a lot of caveats, but on the face of it Hutchison is a more suitable owner for Eircom.
Hutchison is an infrastructure business, with a turnover last year of $49 billion and profits of $7 billion. Its core business is operating ports, but its telecommunications business is substantial, including one of Hong Kong’s integrated phone companies.
Its Irish operation 3 may not have shot out the lights since it was launched, but Hutchison seems infinitely better qualified to own and operate the backbone of Ireland’s telecoms infrastructure than faceless institutions focused on minimising their losses.
McAteer would appear to have let an opportunity to put Eircom on a sounder footing slip by. But, in fairness to him, he was never going to get any deal to fly that did not have the support of the bondholders and they have told him they are not interested – at that price anyway.
The High Court has also passed up an opportunity to make McAteer engage with Hutchison. In turning down an application to that effect by Hutchison, the commercial court head, Mr Justice Peter Kelly, made it clear that his role was not to second-guess the examiner.
As a result, the takeover by the bondholders is all but a fait accompli. But that does not have to be the end of the matter, given Hutchison and the bondholders can negotiate directly.
One potential pitfall is that Comreg, the communications regulator, is to embark shortly on the process of auctioning additional mobile spectrum. Once the trigger is pulled on this process, the various parties apparently cannot talk to each other, as both are potential bidders (Eircom owns Meteor).
This perhaps is where the Minister has a role to pay and he can presumably talk to the regulator to create the space for Hutchison to negotiate with Eircom’s bondholders, assuming he is supportive of the idea.
He also controls a number of assets – such as the State’s fibre network – that he could use to sweeten any deal and give the Government a role in any new entity.
It would not be easy, but if he cares enough to put himself in the middle of a battle for control of a newspaper group, he can and should take an interest in who owns the State’s telecommunications backbone.