Superloop (ASX:SLC) share price soars 21% following asset sale

Superloop is in for a $140 million windfall on the back of this sale…

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The Superloop Ltd (ASX: SLC) share price is surging higher today after its latest announcement. Eager eyes have turned to the company’s shares after an agreement to sell Superloop’s Hong Kong operations, as well as select Singapore assets.

At the time of writing, shares in the telecommunications infrastructure company are changing hands for $1.18, up 21.65%. For comparison, the S&P/ASX 200 Index (ASX: XJO) is trading 0.04% lower in early trade.

Let’s lift the lid on Superloop’s latest transaction.

Superloop share price climbs on offloading

Superloop shareholders are watching on as the company’s value stampedes higher on Monday. It appears investors are supportive of the latest strategic business decision.

According to the company’s announcement, Superloop has entered a binding agreement with funds affiliated with Columbia Capital and DigitalBridge Investment Management. The agreement entails the sale of Superloop’s Hong Kong operations, in addition to select assets of Superloop Singapore.

Positively, the $140 million sale price of these assets represents a 30% premium ($32 million) above the current carrying value.

However, there is more to the announcement than a simple asset sale. As part of the deal, Superloop will enter a 15-year indefeasible right of use on the existing or future expanded Singapore and Hong Kong networks. This will allow the ASX-listed company to continue participating in these geographies through its INDIGO submarine cable.

Under the terms, Columbia Capital and DigitalBridge will become strategic partners with Superloop to expand upon its INDIGO traffic with a preferential supply agreement.

Essentially, this means the investment funds will assist in expanding Superloop’s customers while they become customers at a discounted rate. The terms seem to be looked upon fondly by investors today, with the Superloop share price surging.

Management commentary

Commenting on the asset sale and partnership, Superloop CEO and managing director Paul Tyler stated:

I recognised when I joined Superloop that one of our great opportunities was to look at the invested capital of the business and where appropriate, recycle it and re-invest in areas that will drive greater shareholder returns. This sale of our Hong Kong business and select Singapore assets, at a premium to their carrying values, allows the company to release significant shareholder funds and redeploy them into more strategically aligned assets, higher growth opportunities and markets.

Furthermore, the announcement highlighted that the company will undergo a review of its capital. This will include the proceeds from this sale, gearing level, growth investments, liquidity, etc. Subsequently, Superloop plans to update the market on the outcomes of this review in February 2022.

Finally, the expectation is the company will be in a much stronger net cash position from this sale and review. As a result, Superloop hopes to be better primed for investing in organic growth, as well as merger and acquisition opportunities.

Superloop snapshot

The Superloop share price has outperformed the benchmark index over the past year. Specifically, the telecom offering has surged more than 30% in the past 12 months. Meanwhile, the Aussie index has added 18.4% during the same time period.

According to its financial reports ending June 2021, the company held $89.724 million in cash and cash equivalents. On the other hand, its debts totalled $56.134 million at the end of the financial year.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended SUPERLOOP FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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