National Broadband Plan (NBP) – Investment Structure Explanation
1. NBI Structure
NBI is a privately owned group of Irish incorporated companies made up of:
1.1 Metallah Limited, which is a holding company of the two operating companies;
1.2 NBI Infrastructure DAC, which is the party to the Project Agreement with the Minister for the Environment, Climate and Communications (the “Minister”) and is therefore the entity primarily responsible for the overall National Broadband Project; and
1.3 NBI Deployment DAC, which is the party to a sub contract with NBI Infrastructure DAC under which it is responsible for the design and build of the national broadband network.
It is a common feature of infrastructure projects to separate the design and build role from the operational role.
2. NBP Funding Model
The current funding model for the NBP is comprised of three parts:
2.1 investor funding: the funding model for the Project envisages staggered drawdowns of investor commitments. It is a common feature of private investments in infrastructure projects that shareholder investments are structured as a combination of shareholder equity and shareholder loans. In corporate finance terms, shareholder loans are generally considered equivalent to equity. Shareholder loans are not to be confused with third party debt. The shareholder loans are unsecured. Although interest accrues in relation these loans, none has been paid to date and there are no plans to pay any at this time. Interest on shareholder loans is part of the approved budget for the NBP;
2.2 revenues generated through the customer use of the NBP network;
2.3 publicly funded subsidy payments, which are required because it was not commercially viable to deploy and operate the NBP network over the life of the project. Publicly funded subsidy payments of this type are subject to very stringent requirements under EU State Aid rules and the terms of the Project Agreement and can only be used for expenditure that is expressly permitted under the terms of the Project Agreement.
3. Investor Funding
3.1 NBI’s successful bid for the NBP project included an investor funding commitment of €175,000,000. Notwithstanding this, as a matter of prudence the funding structure put in place involved total investor commitments of €223,000,000.
3.2 These are funds committed by the investors, to be paid when NBI calls for them. It is a common feature of private investments that such investments are structured as commitments to be drawn down when the business needs the funds.
3.3 On the Effective Date (9 January 2020), €100,000,000 of the total investor commitment was drawn down by NBI. It is typical feature of private investments that they are structured as a combination of shareholder equity and shareholder loans. The split of the €100,000,000 was €2,000,000 equity and €98,000,000 of shareholder loans. Unlike third party debt, these shareholder loans act more like equity as they are unsecured and thus at similar risk to equity.
3.4 In December 2021, a further €20,000,000 of the total investor commitment was drawn down by NBI in unsecured shareholder loans.
3.5 The undrawn balance of the €175,000,000 sum mentioned above is the subject of guarantees from certain of NBI’s investors.
3.6 Therefore, to date, NBI has drawn down a total of €120,000,000 from the investors and it has the right to draw an additional €103,000,000 when the business needs such funds.
4. Ownership of NBI
4.1 The shareholders of NBI Infrastructure DAC and NBI Deployment DAC are Metallah Limited and the Minister, who holds a special share with certain consent rights in respect of NBI Infrastructure DAC and NBI Deployment DAC.
4.2 All companies used in the NBI structure were new entities, set up specifically for the NBP. NBI Infrastructure DAC and NBI Deployment DAC were required by the Government to be new companies. It is a common feature of infrastructure projects to use new entities so that no historic or unrelated liabilities could adversely affect the relevant business.
4.3 The shareholder of Metallah Limited is Granahan McCourt Dublin Limited, and above Granahan McCourt Dublin Limited there are numerous other holding companies and investment vehicles into which the various investors have invested at different levels.
4.4 The investors in NBI are:
(a) Granahan McCourt;
(b) Tetrad Corporation;
(c) Oak Hill Advisors;
(d) Twin Point Capital; and
(e) other minority investors, including members of the senior management team of NBI.
4.5 There have been no changes to the ownership and control of NBI since the effective date of the Project Agreement.
4.6 The corporate structure was established to facilitate an investment structure that satisfied the requirements of (i) the tender process, (ii) the project agreement and (iii) the investors’ requirements.
4.7 While there are a number of layers to the corporate structure, fundamentally David McCourt, via voting rights in affiliated entities, retains control of NBI.
5. Changes in Ownership and Control
The Project Agreement contains restrictions around changes in the ownership and control of NBI:
5.1 the sale of any shares in NBI during the period up to the completion of deployment to 100% of premises and 12 months thereafter (i.e. until approximately 2027) requires the written consent of the Minister;
5.2 any direct or indirect change of control (being a 30% test) during the period up to the completion of deployment to 100% of premises and 12 months thereafter (i.e. until approximately 2027) requires the written consent of the Minister;
5.3 any transfer by David McCourt of any direct or indirect interest in NBI during the period up to the completion of deployment to 100% of premises and 12 months thereafter (i.e. until approximately 2027) requires the written consent of the Minister; and
5.4 sales to unsuitable third parties (e.g. persons with criminal convictions or who are prohibited from participation in public procurement procedures or who are a threat to national security) are prohibited at all times.
There have been no changes in ownership or control since the Effective Date (9 January 2020).
6. Project Costs
6.1 Payment of subsidy to NBI is subject to detailed and specific reporting requirements and the project financial model. Only certain costs incurred by NBI (referred to as permitted expenditure) attract a subsidy payment from the Minister. Subsidy is only payable upon the incurrence by NBI of costs that qualify as permitted expenditure AND the achievement of milestones in accordance with the Project Agreement. In addition to the Government’s own advisors’ oversight of subsidy payments, an independent certifier must confirm that the milestones have been achieved.
6.2 NBI and the Minister agreed to bear their own costs, expenses, legal payments and liabilities incurred in respect of the preparation, execution and implementation of and compliance with the Project Agreement.
6.3 Granahan McCourt incurred significant costs during the bid stage, in relation to technical, financial, legal and tax due diligence, project development and related matters. Granahan McCourt was fully on risk for those costs during the bid period. The Project Agreement envisaged that such costs would be reimbursed by NBI. This reimbursement was not funded from subsidy paid by the State. It is ordinary course for successful bidders in procurement processes to recoup bid costs as part of the implementation of the successful bid.
Under the National Broadband Plan (NBP) Contract, National Broadband Ireland (NBI) will roll out a high speed and future proofed broadband network within the State Intervention Area and will operate and manage this network over the next 25 years.
The contract was published in redacted form by the Government in August 2020 and is a detailed document which sets out the specific terms governing the rollout of the high speed broadband network under the State intervention. The contract is published here gov.ie – National Broadband Plan Contract (www.gov.ie)
NBI has produced a contract summary document. By its very nature the summary document does not seek to cover every aspect of the contract but is intended to assist the reader in navigating, understanding and explaining the contract.View Contract Summary