Syndication, Q2 Dividend &Shareholder Consultation

Digital 9 Infrastructure PLC

28 September 2023

 

THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT MAY CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE UK'S MARKET ABUSE REGULATION. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, SUCH INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

28 September 2023

DIGITAL 9 INFRASTRUCTURE PLC

("D9", the "Company" or, together with its subsidiaries, the "Group")

Update on Syndication and Q2 2023 Dividend

Initiation of Shareholder Consultation

The Board of Digital 9 Infrastructure plc (ticker: DGI9), a leading investor in the infrastructure of the internet, and the Company's Investment Manager, Triple Point Investment Management LLP ("Triple Point"), today provide a Company update.

Syndication Update

As announced on 9 March 2023, there is an ongoing competitive process to syndicate a stake in the Verne Global group of companies, including its operating sites in Iceland, Finland, and the United Kingdom (together, "Verne Global") to a strategic capital partner (the "Syndication").

The Company is pleased to announce it has significantly progressed the Syndication and is in receipt of several non-binding offers at, or around the USD net asset value of Verne Global as at 31 December 2022.

These offers, which are currently under review, comprise proposed transaction structures for both a co-controlling and majority stake sale, and funding solutions for the significant capital expenditure commitment for Verne Global's platform. Due to the sustained and accelerated customer demand for its facilities, from both new and existing customers, the growth capital expenditure pipeline for the Verne Global companies of £493 million reported in January 2023 has increased to £610 million.

Cash proceeds (net of costs) from the Syndication will enable D9 to pay down a significant portion of the Group's drawn revolving credit facility ("RCF") and cancel part of it, thereby reducing costs. As at 30 June 2023, £356 million was drawn under the Group's £375 million RCF.

In the medium term, upon Syndication completion, the incoming investor is expected to support Verne Global's growth capital expenditure pipeline which will help scale the platform's capacity to over 100 MW through pro-rata equity injections and an additional funding facility. By maintaining a direct interest in Verne Global, D9 will continue to benefit from the data centre platform's anticipated earnings growth.

Executed terms for the Syndication are now expected to be announced in Q4 2023.

Operating Cash Flow

Operating cash flow ("OCF") dividend cover reflects the Company's ability to cover its dividends from the operational cash flow generated by its Investee Companies, after deducting Investee Companies' maintenance capex and interest costs.

The forecast OCF from Investee Companies remains materially unchanged since 31 December 2022, save that the launch of EMIC-1, and therefore the receipt of cash, has been delayed by up to 6 months to Q2 2025 due to deployment restrictions in the Red Sea. The Board and Investment Manager expect operating cash flow dividend cover to be substantially achieved by 31 December 2024 as Investee Companies' operations mature. This is primarily due to:

·    Verne Global Iceland, Verne Global London, and Verne Global Finland have presold existing data centre capacity, the take up of which will ramp up over time. Actual ramp up is ahead of the expected ramp up profile disclosed in the Company's 2022 Annual Report. In the 2022 Annual Report, it was reported that an additional 4.2 MW was due to be fully ramped by December 2023. Due to additional contracts signed during the year, 6.6 MW will be fully ramped by December 2023. Of the 8.6MW which was previously reported to be ramped by December 2024, 11.5 MW is now forecast to be ramped by the same date. It is expected that all remaining contracted capacity reported at 31 December 2022 to be fully ramped by the end of 2026.

·    As announced on 21 June 2023, Arqiva Group entered into an inflation collar on its existing inflation-linked swaps which applies to 100% of the Retail Price Index ("RPI") exposure of the swaps and caps the impact of RPI from 2024 at c.6.0% until the swaps' expiry in 2027. This significantly limits the downside risk of inflation for Arqiva Group and D9's exposure to it. The Company expects inflation to fall significantly by March 2024, and therefore expects the Arqiva Group OCF for the period to June 2024 to materially increase.

·    The launch of EMIC-1, the Group's 10,000km fibre system from Europe to India.

The Investment Manager continues to evaluate other strategic portfolio management initiatives and other complementary sources of growth capital, including other partial disposals, to accelerate the receipt of cash by D9 from the Investee Companies.

Q2 2023 Dividend Update

The Board has elected to not declare the Q2 2023 dividend.

Since the Company Update in July 2023, and notwithstanding the strong operating performance of Investee Companies in line with management expectations, the persistently higher interest rate environment in which the Company trades has continued to impact the Company's liquidity and sustainable balance sheet management.

At 30 June 2023, the Group had c.£47 million of unrestricted cash available and £18.8 million remaining undrawn from the £375 million RCF, excluding the accordion tranche of up to £125 million. As at 27 September 2023, the Group had c.£30 million of unrestricted cash available with £11.3 million remaining on the RCF.

While the Board and Investment Manager expect operating cash flow dividend cover to be substantially achieved by 31 December 2024, further increases in net interest costs, related to the RCF and the Group's reinvestment into its growth capital expenditure pipeline reduce actual cash available for distribution. Additionally, the Arqiva Group Vendor Loan Note ("VLN"), and the Company's share of the Arqiva Group accretion payment on its inflation-linked swaps, which expire in 2027, continue to restrict the Company's access to OCF to support the Company's dividend policy in the medium term.

The Investment Manager believes a more conservative approach to capital allocation is required in order to enhance the Company's medium-term liquidity and further accelerate the deleveraging of its balance sheet in the current high interest rate environment.

The Board has therefore elected to not declare the Q2 2023 dividend and withdraw its target dividend of 6.0 pence per Ordinary Share for the year ending 31 December 2023.

Initiation of Shareholder Consultation

In light of the above, the Board will start a formal consultation with its shareholders, starting on 2 October 2023, to determine the optimal future dividend policy and discuss the future direction of the Company, acknowledging the diverging views among the Company's shareholders regarding the Company's capital allocation policy. This shareholder engagement will be led by the Chair and Board of Directors in conjunction with the Investment Manager and the Company's Joint Corporate Brokers, J.P. Morgan Cazenove and Peel Hunt.

The Company will provide a further update following the conclusion of the shareholder consultation.

ENDS.

FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT:

Triple Point Investment Management LLP (Investment Manager) Diego Massidda Ben Beaton	[phone]
J.P. Morgan Cazenove (Joint Corporate Broker) William Simmonds Jérémie Birnbaum	[phone]
Peel Hunt (Joint Corporate Broker) Luke Simpson Huw Jeremy	[phone]
FTI Consulting (Communications Adviser) Ed Berry Mitch Barltrop Maxime Lopes	[e-mail] [phone] [phone] [phone]

LEI: 213800OQLX64UNS38U92

For the purposes of UK MAR, the identity of the person making this notification is Luke Cheshire.

About Digital 9 Infrastructure plc:

Digital 9 Infrastructure plc (DGI9) is an investment trust listed on the London Stock Exchange and a constitutent of the FTSE 250, with ticker DGI9. The Company invests in the infrastructure of the internet that underpins the world's digital economy: digital infrastructure.

The Investment Manager is Triple Point Investment Management LLP ("Triple Point") which is authorised and regulated by the Financial Conduct Authority, with extensive experience in infrastructure, real estate and private credit, while keeping ESG principles central to its business mission. Triple Point's Digital Infrastructure team has over $300 billion in digital infrastructure transaction experience and in-depth relationships across global tech and global telecoms companies.

The number 9 in Digital 9 Infrastructure comes from the UN Sustainable Development Goal 9, which focuses the fund on investments that increase connectivity globally and improve the sustainability of digital infrastructure. The assets DGI9 invests in typically comprise scalable platforms and technologies including (but not limited to) subsea fibre, data centres, terrestrial fibre and wireless networks.

From its IPO in March 2021 and subsequent capital raises, DGI9 has raised total equity of £905 million and a revolving credit facility of £375 million, invested into the following data centres, subsea fibre, terrestrial fibre and wireless networks:

·    Aqua Comms, a leading owner and operator of 20,000km of the most modern subsea fibre systems - the backbone of the internet - with a customer base comprising global tech and global telecommunications carriers (April 2021);

·    Verne Global Iceland, the leading Icelandic data centre platform, with 40MW of high intensity computing solutions in operation or development, powered by 100% baseload renewable power (September 2021);

·    EMIC-1, a partnership with Meta on a 10,000km fibre system from Europe to India (July 2021);

·    SeaEdge UK1, a data centre and landing station for the North Sea Connect subsea cable, part of the North Atlantic Loop subsea network, improving connectivity between the UK, Ireland, Scandinavia and North America (December 2021);

·    Elio Networks (previously Host Ireland) a leading enterprise broadband provider that owns and operates Fixed Wireless Access networks (April 2022);

·    Verne Global London (previously Volta), a premier data centre based in central London, providing 6MW retail co-location services (April 2022);

·    Verne Global Finland (previously Ficolo), a leading Finnish data centre and cloud infrastructure platform, with c.23MW of data centre capacity, powered by 100% renewable power and distributing surplus heat to district heating networks (July 2022) and

·    Arqiva, the only UK national terrestrial television and radio broadcasting network in the United Kingdom - providing data, network and communications services, as well as a national IoT connectivity platform (October 2022).

The Company's Ordinary Shares were admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange on 31 March 2021. It was admitted to the premium listing segment of the Official List of the Financial Conduct Authority and migrated to trading on the premium segment of the Main Market on 30 August 2022.

For more information on the Investment Manager please visit www.triplepoint.co.uk. For more information, please visit www.d9infrastructure.com.

 

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