NBN Co pays $3 billion of its $19.5 billion government loan

NBN Co has started to pay down the $19.5 billion it was loaned by the government back in 2016 to complete the rollout, using a mix of privately-sourced debt funding.

The company talked up its financial position and debt-sourcing acumen at its half-year results today, repeating several times that it is “in the top ranks of Australian corporate borrowers”.

It sourced a combined $10.1 billion in calendar year 2020, comprising $6.1 billion from banks in May last year and “additional facilities of $4 billion during the six months to 31 December 2020, including $1.6 billion in Australian Medium Term Notes (AMTN).”

It used $3 billion of this total debt funding - “the full proceeds of the AMTN and $1.4 billion bank debt drawdowns” - to start paying off the $19.5 billion government loan it received in November 2016 to complete the rollout, after running out of equity.

“This new financing has enabled the repayment of $3 billion of the Commonwealth loan, reducing the outstanding loan balance to $16.5 billion,” NBN Co’s chief financial officer Philip Knox told an analyst briefing.

“This repayment has decreased our weighted average cost of drawn debt from 3.96 percent to 3.17 percent, and we expect this to continue to fall as we further progress refinancing the government loan.”

NBN Co has until June 2024 to refinance the remainder of the government loan - three years more than it initially had.

The government had previously set milestones for when the loan was to begin to be repaid but they were kept from public view.

NBN Co executives would not be drawn on the timing of future milestones for refinancing the remaining $16.5 billion.

“Our intention is to take a very considered view over the next while to ensure that we refinance that,” CEO Stephen Rue said.

“As you can see during this period we made terrific progress towards that.”

Both Rue and Knox were, however, keen to tout NBN Co’s ability to raise debt - perhaps unsurprising given that in years past, there was little confidence displayed in NBN Co's ability to refinance or repay the loan.

Rue said that high-grade credit ratings had assisted the company to find debt facilities.

“Like a startup transitioning out of its bootstrapping phase, we have now matured our operations and financial performance to a point where we can attract funding based on the strength of our operations and strategy,” Rue said.

“Over the last 12 months we have done just that. In calendar 2020, we raised over $10 billion in third party debt facilities, which has positioned us in the top ranks of Australian corporate borrowers. 

“Raising this debt is a significant achievement when you consider the economic uncertainty affecting the confidence of global markets, but we are a high growth business providing an essential service.”

“It’s been a great achievement to raise more than $10 billion in the debt markets over the past 12 months,” Knox echoed.

“It shows us that external lenders believe in our strategy and that our high-growth business is well positioned to capitalise on a rapidly digitising economy.”

Of the $10.1 billion raised to date, Knox said that $6.1 billion “of private and Australian medium term note debt had been utilised” as of December 31, “leaving $4.1 billion available to support the ongoing business activities and further network investments”. 

Finance Minister Simon Birmingham welcomed the first repayment.

“The government also welcomes NBN Co’s successful further debt raising of $4 billion over the past six months, which is being used to repay its Commonwealth loan and fund new investments, including major network upgrades to improve customer services that will also create thousands of extra jobs and support our economic recovery,” he said in a statement.

Meanwhile, shadow minister for communications Michelle Rowland criticised the “surge” in debt at NBN Co, “going from $19.5 billion to at least $26.5 billion.”

She labelled “boasts about growing piles of debt as though it was an achievement and not a function of failed technology decisions” as “bizarre”.

NBN Co reported total revenue of $2.26 billion for the six months to 31 December 2020, a 25 percent increase on H1 FY20.