Swiss telco gets thumbs up from ratings agencies while broadband market looks promising
Salt Mobile, through its parent Matterhorn Telecom, announced it is raising funds via the pricing of CHF100m senior secured notes with a maturity date in 2028 and an annual interest rate of 5.250%.
The proceeds from this offering will be used to partially redeem existing €246.5m worth of 2.625% senior secured notes due in 2024 and to cover related expenses. The notes will be secured by various assets of the company, including shares of capital stock, certain bank accounts, and intragroup receivables.
“We are delighted with this successful placement of our first issue in Swiss francs. The confidence of investors is a further testament to the strength and sustainability of our business model, our strategy and our operational performance,” said CFO Franck Bernard.
Ratings thumbs up
The fund raising comes after ratings agency S&P upgraded the long-term issuer credit and issue ratings on Matterhorn to BB- while Fitch assigned Matterhorn Telecom a first-time long-term issue default rating of BB-, plus a BB+ issue rating to its proposed CHF100m secured notes.
After the successful transformation of the business, we have continuously expanded our business and achieved strong customer growth in all areas,” said Bernard. “Throughout this process, we have always been focusing on profitability and demonstrated financial discipline. These ratings underline that we have created an attractive and sustainable growth platform that is reliably generating strong cash flows.”
S&P highlighted Salt’s “sophisticated structure” of its wholesale [FTTH] agreements, and its “strong focus on efficiency”, as helping the telco deliver above-average margins and stronger cash flows than peers.
Fitch Ratings said that despite Salt’s relatively low mobile market share compared to other challenger operators in Europe, the telco’s “strong execution and a lean cost structure”, means it has one of the highest EBITDA margins in the sector.
“Salt has a strong opportunity to grow revenues and increase the diversity of its cashflow through expanding its fixed, fibre broadband business over the next four to five years,” stated Fitch. “The company has an attractive, multi-supplier agreement for fibre that that allows near owner economics and success driven capex that improves investment risks and speeds up time to market.”
A Salt on the fibre market
Salt has a mobile market share around 16%-17% although this has been stable for the past 5-6 years. However, its lean operating model has kept its margins well above European peers. At 1Q23, Salt had around 200k fixed broadband subscribers, equating to a national market share of about 5%. Fitch believes the telco is likely to be able to double this over the next four to five years.
Salt has secured contracts with Swisscom on a national basis and with regional utilities on a local basis for the supply of fibre network infrastructure for fixed broadband services. The contracts enable the telco to gain 20-year fibre network access with near owner economics through the purchase of Indefeasible Rights of Use (IRU).
This means it can generate infrastructure-like margins with typical high upfront deployment costs that are on average staggered over more than 10 years. The IRU payment is only due when a customer signs up.
Compared with deploying its own network, Fitch believes utiIising IRUs gives Salt faster access to local fibre infrastructure, reduces own-network deployment risks and importantly removes the uncertainty of product uptake risks that make-or-break fibre deployment economics.
Spicing up other sectors
At its recent quarterly results in May, Salt, which got a new CEO Max Nunziata on 1 June, said it has reached 99.9% mobile network coverage in Switzerland. It posted 32,500 postpaid mobile net adds for the quarter, moving subs to more than 1.5m. Salt also said it had been chosen by Swiss Post to become the exclusive partner to provide telecommunication services to Post customers as of 2024.