Telstra joins bidding for Leighton assets

Telstra has so far not been considered a realistic buyer of the most valuable component of Leighton Holding's telecom portfolio, intercity fibre network NextGen, because of regulatory constraints.

But although there is no official word from Telstra, by Friday it was virtually confirmed that the carrier remains a potential participant in the Macquarie Capital-led sale, and received an information memorandum after lodging an expression of interest last month.

Competition commission chairman Rod Sims told The Australian Financial Review the regulator would scrutinise any move by Telstra or No 2 provider SingTel Optus to increase their positions in the market for backhaul services. ''If either of those two are thinking about buying it (NextGen), we would have to look at it very, very closely,'' he said.

However, mindful of regulatory opposition, Telstra's interest is believed to centre on managed services provider Infoplex and data centre business Metronode, which could be rolled into its fast-growing network applications and services division. Macquarie and Leighton are believed to be open to the sale of the assets individually or to a single buyer.

Estimates suggest that NextGen alone could fetch up to $1 billion, based on a multiple of nearly 10 times enterprise value to cash earnings before interest and tax. NextGen generated $125 million in EBITDA in fiscal 2011, but that figure is believed to include some non-recurring income.

Proceeds from a sale could be used to strengthen Leighton's balance sheet amid lingering concerns over further write-downs to its troubled Middle East operations. The engineering and construction giant has net debt of about $1.6 billion.

NextGen is considered a low-cost alternative to Telstra and SingTel Optus and in the market for backhaul. Its customers are believed to include TPG Telecom, iiNet and Vodafone Hutchison Australia.

A wide range of domestic telcos and international private equity firms are believed to have requested the information memorandum, which was circulated to interested parties last month. Indicative bids are due the week ending 24 November.