The Long and Short

Proceeds from Vantage IPO to Fund VOD Tender

| March 26, 2021

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.

Vodafone Group PLC (VOD) announced a EUR 4 billion tender offer for front end debt which is expected to be funded mostly with proceeds from the IPO of Vantage Towers, VOD’s European towers unit. The tender offer will focus on debt maturing between 2021 through 2024 and helps to address some upcoming maturity walls. While net leverage is only expected to decline roughly 2 ticks to 2.8x, it puts VOD comfortably within its net leverage target range of 2.5x-3.0x. Management’s willingness to use IPO proceeds to bring leverage into its target range should help push VOD spreads tighter across the curve.

On March 18, 2021, Vantage Towers placed just under 96 million of shares resulting in gross proceeds of EUR 2.3 billion. The shares represent 18.9% of Vantage Towers’ outstanding share capital, with the remaining 81.1% continued to be held by VOD. The IPO proceeds will help offset maturity walls in 2022 and 2024, where the company has EUR 4.7 billion and EUR 4.3 billion maturing, respectively. The most attractive bonds in VOD’s capital structure, from a yield perspective, remain the higher coupon bonds. Most notably, VOD 7.7875% 2030 bonds trade at 97 bp (109 bp g-spread; $141) which compares favorably to VOD 4.375% 2028 bonds which trade at 47 bp (79 bp g-spread; $115). Given the dollar price differential and assuming a generous 1 bp per dollar differential, VOD 7.875% 2030 have at least 5 bp of upside relative to the 2028 bonds.

Exhibit 1. VOD Tender Offer

Source: Company Report; Amherst Pierpont Securities

Tender Details

The waterfall tender will be conducted based on acceptance priority levels across ten series of notes with a tender cash cap of EUR 4 billion. The tender levels seem to be the most attractive amongst VOD’s 2024 notes, as that remains one of the company’s largest maturity walls in the front end of the curve. Interestingly enough, VOD has set certain conditions with the tender offer as it relates to the series of notes. According to the press release, VOD does not have to exceed the aforementioned tender cash cap and has set a maximum purchase price consideration condition. Under this condition, upon expiration of the tender, if the aggregate purchase price consideration for a series of validly tendered notes, together with the aggregate purchase price consideration for all validly tendered notes of each series of notes with a higher acceptance priority level is greater than the cash cap, then VOD will not be obligated to accept for purchase that series. Furthermore, if the maximum purchase price consideration condition is not satisfied for a series of notes, then no notes of that series will be accepted for purchase. Essentially this means that despite the acceptance level priorities set forth in Exhibit 1, there is a probability that notes with a higher acceptance level may not be accepted for purchase. The tender is set to expire at 5pm NYC time on 3/26/21 unless extended.

Back to Growth

The pandemic has impacted both top line and EBITDA growth for VOD, which has largely kept leverage slightly above management’s target range. However the company’s fiscal 3Q21 results can best be described as resilient, with VOD returning to positive organic service revenue growth. While the growth was minimal, at 0.4%, it is a step in the right direction after two consecutive quarters of declines. Management noted that absent the negative impact from the pandemic (roaming and visitor), the growth rate would have been closer to 1.8%. That said, management is looking at next year for growth to accelerate due to both increased demand and commercial momentum. Customers will pay more for quality network coverage and given VOD’s scale, they expect to see more customers sign on to the network. Additionally, VOD also expects to see EBITDA growth in fiscal 2022. They noted that this is crucial to help further delever with the lower end of it 2.5x-3.0x net leverage target in sight. Capital priorities remain the same with shareholder rewards behind debt reduction. We would expect VOD to look to return to buybacks once it achieves its 2.5x net leverage target.

An Outlook Change?

Moody’s remains the only agency with a negative outlook on its current rating for VOD. The rating was downgraded back in 2019 with the outlook changed to negative subsequent to VOD’s acquisition of the Liberty assets. At the time, Moody’s noted that the leverage remained high for the Baa2 rating and would need to see adjusted leverage sustained below 3.3x. One topic of discussion in the Moody’s release was using asset sale proceeds for debt reduction. The use of IPO proceeds resonates well with the agencies and the reduction in leverage should bring adjusted leverage below the targeted 3.3x range that Moody’s is targeting. Investors should expect to see Moody’s revise the outlook to stable over the near to intermediate term, barring any further significant disruptions from the pandemic.

Meredith Contente
meredith.contente@santander.us
1 (646) 776-7753

This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.

This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.

Important Disclaimers

Copyright © 2023 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.

In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.

The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.

This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.

In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.

Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.

The Library

Search Articles