The Rogers Building in Toronto on April 22, 2014. In October, Rogers announced plans to sell a minority stake in its wireless backhaul business to an institutional investor, later revealed to be New York-based private equity fund manager Blackstone Inc.Darren Calabrese/The Canadian Press
As Rogers Communications Inc. RCI-B-T continues to negotiate a $7-billion sale of a stake in its telecom infrastructure, there are growing concerns among analysts and investors over when the deal can be completed and how it will be treated by credit rating agencies.
In October, Rogers announced plans to sell a minority stake in its wireless backhaul business to an institutional investor, later revealed to be New York-based private equity fund manager Blackstone Inc. Rogers plans to use the money to pay down a portion of its $44.9-billion of long-term debt and short-term borrowings.
On Thursday, Rogers chief executive officer Tony Staffieri said the two sides were continuing to work on “definitive agreements” on a structured equity investment he described as “an innovative first-of-its-kind transaction to Canada.”
Analysts said uncertainty over the planned asset sale is weighing on Rogers’ stock price, which fell by 36 per cent over the past 12 months amid an industry slump. In a report, analyst Tim Casey at BMO Capital Markets said: “We expect investors will remain wary of the uncertainty of the investment, the rating agencies’ treatment decision and the related impact to leverage.”
Shares of Rogers closed down 3.7 per cent on Friday, while shares of rival telecoms BCE Inc. BCE-T and Telus Corp. T-T were steady.
“What causes concern for us is the delay in closing of the backhaul transaction,” said analyst Maher Yaghi at Bank of Nova Scotia in a report this week. “Until we get more clarity on this, we may continue to see pressure on the stock.”
Rogers is aiming to convince credit rating agencies to treat Blackstone’s $7-billion purchase as equity, rather than debt, to help maintain Rogers’ investment-grade debt rating, which Mr. Staffieri said is a priority for the company.
In recent reviews of structured equity financings similar to Rogers’ planned transaction, rating agencies proved tough to please. In June, S&P Global said Intel Corp.’s US$11-billion sale of a minority stake in its Irish factories to private equity fund Apollo Global Management qualified as equity, in part because the chip maker has the right to suspend dividend payments to Apollo.
However, S&P said Intel’s US$15-billion sale of a portion of its Arizona facilities to Brookfield Asset Management Ltd. in 2022 counted as debt, because Intel guaranteed it would keep paying Brookfield dividends on the investment.
Rogers’ deal with Blackstone is expected to see the telecom company pay dividends on the backhaul business tied to the amount of data the business carries between cellphones and cell towers or base stations. In October, Rogers executives said they planned to negotiate the right to buy the business back from Blackstone at a future date.
Credit rating agencies will scrutinize details of the asset sale and two investment banking sources familiar with the structure of the agreement said Rogers’ option to repurchase the business will draw attention, as it implies the telecom may take on more debt in the future.
Credit rating agency Moody’s is reviewing the proposed equity investment, according to people with knowledge of the matter.
Moody’s vice-president and senior credit officer Peter Adu said in an e-mail that the company is still working with the investor on the terms of the transaction.
“We will provide our opinion on the treatment once we get the final terms,” he said.
Editor’s note: (Feb. 3, 2025): A previous version of this article incorrectly stated that Moody's said they had begun reviewing the Blackstone investment. That information came from other sources with knowledge of the matter. The article has also been updated with correct spelling of the surname of Moody's vice-president and senior credit officer Peter Adu.