Relevant Documents:2021 Topco Report
2021 Opco Report
Worcestershire, U.K.-based alternative telecommunications network provider Airband is looking to raise capital to finance its network expansion plan, sources told Reorg, as auditors warned of material uncertainty in its latest-available 2021 accounts.
Simultaneously, the group is working to improve its operational structure and achieve cost efficiencies, sources said.
Discussions about a capital raising follow wider losses and cash burn as Airband rolls out an ambitious network expansion plan. The group reported a 29% year-over-year increase in revenue to £2.7 million in 2021, but its loss
widened to £11.1 million from a loss of £10.9 million a year earlier. The loss reflected higher operating expenses, which rose 35% year over year to £14.4 million.
During the period, capital expenditure also jumped to about £33.9 million, compared with less than £9 million a year earlier, according to Reorg calculations. The increase was driven by £33.6 million spent on building the network during 2021, up from £8.6 million the previous year. The group closed the year with £23 million in shareholder funds. Its cash balance shrank to £5.8 million at the end of 2021 versus £16 million in 2020.
The entire alt-net sector is under stress due to rising costs and slowing economic growth, which will make it challenging for Airband to raise capital, sources said. The sector is capital intensive as alt-net projects, which are long term, require funding over their life, sources said. It can take five years or even longer before customer revenues can come in, they added.
According to sources, increased build costs, high debt servicing costs and lower revenue outlook could hamper the sector’s fiber deployment plans. Alt-net providers with inadequate funds will be unable to raise capital ahead of an impending liquidity event and many of them will underperform business plans, breach covenants creating pockets of distress across the sector, sources added. The industry is likely entering a consolidation phase, they said.
Airband primarily builds fiber infrastructure in the rural and underserved areas, which the group says are less competitive but more expensive to build, and for which subsidy and voucher schemes are likely to apply. It finances activities through local council funding grants and external debt and equity investment. Its network covers areas from England’s south west and Wales to Oxfordshire and the Midlands, it says.
In the 2021 topco report, auditors warned about a material uncertainty regarding its ability to continue as a going concern. The operating company relies on the group’s financing activities, access to which is not guaranteed, the auditors added in the 2021 opco report. If agreed debt or equity funding is not accessible, the operating company and the group would need to raise additional funding or restructure business operations, according to the report.
According to the 2021 topco accounts, which were approved on Sept. 9, 2022, the group prepared a detailed monthly business plan for the 12 months ending September 2023. The plan envisaged £45.7 million of funding to be provided by sponsor Aberdeen Standard Investments, or abrdn, to support infrastructure rollout from January 2022 to June 2023. The group said at the time that it can scale back planned infrastructure growth to reduce funding required should it see fit.
When abrdn took control of the group in November 2020, it provided £20.3 million and agreed to invest a further £60 million to support the group’s network expansion over the next two years, of which £24.3 million was provided last September, according to the topco reports.
It is not clear if the sponsor provided the remaining £35.7 million or if the group is rolling back infrastructure expansion, but sources said the group needs new money to support its network rollout plan. Sources said it is important for alt-net companies to expand their network and capture at least 25% market share in their target markets to become financially sustainable.
In late 2021, the group secured a five-year senior debt facility of £75 million and an RCF of £24.5 million from Lloyds, HSBC, Sabadell and Nord LB. Creditors are payable on demand, but the group doesn’t expect to make repayments till at least September 2023, according to the opco annual
report. The group has drawn over £60 million as of September 2022, according to the annual report.
The facilities had certain drawdown conditions and covenants related to customer homes passed and customer penetration rates.
Airband’s fiber to the premises, or FTTP, expansion plan aims to
cover 625,000 U.K. premises by the end of 2025, with the group supporting 180,000 premises, according to Amber Infrastructure, which
acquired a minority shareholding in Airband in 2018 through its National Digital Infrastructure Fund.
Abrdn declined comment.
--Farooq Baloch