We don’t know what’s going on at NBI. We should, because we are paying for it

I have to declare an interest. I live at the end of a country lane in a house connected by an old copper phone line that risks falling apart at any point. In fact, it already has – twice. Since remote working became the norm, I have learned how to perfect the position of my mobile phone in the window to allow hotspotting every time the landline gives up.

In other words, I depend on the delivery of rural broadband to earn a living into the future. I have a vested interest in the National Broadband Plan being a success, and the state’s contractor National Broadband Ireland (NBI) doing well as a result.

“But not like that,” has been my inner reaction at every turn of my reporting on NBI’s finances for the past week.

Granahan McCourt, the investment vehicle of NBI chairman David McCourt, finally confirmed to me on Thursday that it had appointed global investment bank PJT to advise on its options for the capital structure of the business. This did not come as a surprise after reading the accounts recently published by NBI and its cascade of holding companies.

For people inside the business who had access to these figures several months ago, there was no doubt that some restructuring was on the way.

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There has been a lot of debate around the National Broadband Plan, from the recommendation issued in April 2019 by then secretary general of the Department of Public Expenditure and Reform Robert Watt “against this plan on grounds of cost, affordability, value for money and risk,” to concerns over duplication raised by Eir as it pulled out of the tendering process, and public discussion around the choice of the right technology and delivery model.

There are also delays in the physical roll-out of infrastructure, with targets cut by half for this year as the company blamed Covid-19 for difficulties in getting crews on the road last year.

The issues that have emerged from my work over the past week are different. They concern the financial structure of NBI and what it reveals of its investors’ commitment to the National Broadband Plan, relative to the returns they stand to make from it. Above all, they relate to the catastrophic level of transparency into a project that carries a maximum taxpayer-funded subsidy of €2.97 billion – the highest ever in Ireland.

In my unrelated coverage of the toll roads industry, I have described the public-private partnership (PPP) contracts between the state and motorway concessionaires as “opaque”, with no information available on the calculations used to pay subsidies to private operators. This leaves me lost for words to describe the implementation of the National Broadband Plan.

While PPP contracts for toll roads remain secret, at least the companies operating them publish reasonably detailed accounts, clearly identifying their ultimate shareholders and the terms of financial flows reported with them.

The National Broadband Plan, for its part, was published – not “in full,” as Richard Bruton, the minister who signed it, had promised, but in a heavily redacted version. It excludes so much critical information that it is impossible to figure out the level and the format of the financial commitment expected from private investors, the return they can expect to make, and the conditions for this – including the all-important milestones triggering subsidy payments.

Instead, we have to rely on the statements Bruton made in the Oireachtas in the months preceding the signature of the contract. He was clear that private investors, identified as Granahan McCourt and Tetrad Corporation, would have to inject equity ahead of government subsidies; that this equity would amount to €220 million; and that returns from any profit in the project would be paid on the basis of that equity.

By the time of contract signing, cracks were already appearing, with US investment firm Oak Hill Advisors (OHA) appearing as a last-minute investor and the €220 million appearing as a “loan stock” commitment in the documents. I revealed this week that Granahan McCourt in fact owns just 10 per cent of the business.

Contrast this with the situation now reported this week in our series of articles, NBI uncovered. In 2020, its first year of operation, NBI received €2 million in equity and €98 million in shareholders’ loans. While the shareholders have not collected any traditional returns from their equity investment as dividends, their external companies have charged €50 million in fees and interest to NBI.

The interest on the loans is compounded at a 12 per cent interest rate. At this rate, the €98 million invested by NBI’s shareholders would double to nearly €200 million in debt owed to them by the state-subsidised company after six years. Not that they are necessarily planning to stay that long – under the terms disclosed so far, the loans fall due after five years.

The make-up of the investor group itself is puzzling. Shareholder’s loans were in proportion to their equity at the end of 2020 – but not initially. OHA extended the majority of NBI’s funding, before transferring a €4.6 million loan tranche to a secretive Delaware company, Telecom Infra Mgmt LLC. Because this asset was originated by OHA, I identified that company as an investment vehicle of OHA. After publication, however, the Department of Communications, citing information from NBI, denied this and told me that Telecom Infra Mgmt LLC was owned jointly by Tetrad Corporation and Granahan McCourt.

This does not explain why, when each shareholder had a clear investment vehicle in place, a 5 per cent stake happening to cast a decisive majority interest in NBI ended up floating towards a holding company on which no information was available until The Currency began to report about it – or what OHA obtained in return for transferring its 5 per cent loan interest.

Not only this, but a 25 per cent shareholding in NBI is held in trust for investors who remain formally unidentified to this day. One of the group’s many holding companies lists them as associates of NBI director Hamid Akhavan-Malayeri, a US-based telecommunications businessman. Akhavan-Malayeri is publicly associated with Twin Point Capital, an investment firm with a fund targeting the broadband industry. However, none of NBI, OHA, the Department of Communications, Akhavan-Malayeri or Twin Point Capital have answered The Currency’s simple question: Who exactly owns this 25 per cent stake?

This is no way to run a €3 billion taxpayer-funded project.

“Will the taxpayer be on the hook for more liability because the Minister has facilitated this being flipped between vulture capitalists on a continuous basis?”
Jack Chambers TD, May 2019

To his credit, Fianna Fáil TD Jack Chambers highlighted these issues as early as November 28, 2019, the week after OHA was revealed as a member of the consortium that signed the contract. The core section of his exchange at the time with Bruton and acting Dáil chairman Eugene Murphy is worth reproducing in full:

“Chambers: The Granahan McCourt consortium has changed so many times it has been difficult to keep up. First, it was widely known as the Enet-SSE consortium and contained a number of other companies. John Laing, SSE and Enet then dropped out, leaving only Granahan McCourt. We then heard that Granahan McCourt is being backed by McCourt Global and Tetrad. We then heard only Tetrad was involved but that McCourt Global had helped Granahan McCourt to pass the relevant tests. We now find out that it is made up of Granahan McCourt, Tetrad and Oak Hill. Can the Minister clarify the level of investment provided separately by Tetrad, Oak Hill and Granahan McCourt? Is Tetrad providing €175 million? Is Granahan McCourt still providing €45 million? If so, how much is being provided by Oak Hill and to what end? We know that the scale of Granahan McCourt’s investment is limited and that there may be issues with that but what we need to know is what the Minister has not answered. When did it become involved? Was McCourt Global simply used as a front to facilitate it through the process, following which it denied even wanting to be involved in May of this year?

“Murphy: Thank you, Deputy.

“Chambers: What is Oak Hill’s involvement? When did it get involved?

“Murphy: Please, Deputy.

“Chambers: Will the Minister answer those questions?

“Bruton: The Deputy has to be aware that the make-up of a consortium changes over the course of a bid, particularly a PPP bid of this length. As he is aware, this has gone on since 2015. That was always recognised in the contract documents. The contract documents also set out very strict criteria to ensure that whenever a change occurred it did not in any way undermine the basic strength of the proposal. That process of pre-qualification approval was done entirely independent of either me, as Minister, or the Secretary General, by an independent team of experts with a panel, including the National Development Finance Agency, NDFA. This was an independent process.

“What has happened here is that the finalisation of the investment includes Oak Hill, which will have a substantial minority shareholding, but Granahan McCourt will continue to be the controlling interest. It was always envisaged, and other PPP projects are the same, that the equity commitments of the different partners will only be decided at the concluding stage. That is what happened in this case. There is nothing unusual about it. I believe it can be said that Oak Hill has a very substantial financial strength that even a review online will reveal.

“Chambers: We need more than a review online. Is Oak Hill the same Oak Hill that was previously involved with Enet and Mr. McCourt in the past? The Minister might clarify that. The issue is extremely serious because it deals who will be responsible if National Broadband Ireland requires additional funding. For example, concerns about take-up in the intervention area have arisen. We hope that never arises but it is at the core of our concerns. The issue is that it is unclear why McCourt Global was required in this process at all, unless issues arose in the consortium. If it was the case that Granahan McCourt could not pass the financial bar and relied on McCourt Global, that is of public concern. If it was the case that Granahan McCourt could pass the test alone, the question to be asked is why McCourt Global was involved in the first place. There have been a small number of media reports about Oak Hill and the national broadband plan, although very few before last Tuesday, but they were not mentioned as part of the final tender by the Government. Why has Oak Hill only been associated with the tender by Government at this point? If it has been flipped and changed so often in the bidding process, is this what we are facing now –

“Murphy: Thank you, Deputy.

“Chambers: – that the Minister has signed this contract? To whom will Oak Hill sell its equity investment? To whom will Granahan McCourt sell its equity investment? Will the taxpayer be on the hook for more liability because the Minister has facilitated this being flipped between vulture capitalists on a continuous basis? What are the protections for the Irish State? When did –

“Murphy: Deputy.

“Chambers: – Oak Hill become involved? What is its investment? We have no clarity –

“Murphy: Sorry, Deputy –

“Chambers: – on the questions asked.

“Murphy: – it is not fair to do that.

“Bruton: The Deputy will have to appreciate that what has happened here is that contractual commitments to an investment of both equity and working capital of more than €220 million have been made by the investors. The controlling interest in this is Granahan McCourt. However, one of the investors with less than 50 per cent is Oak Hill and that provides a strong financial basis for the roll-out. As I indicated, the process of approving any change in the make-up of the consortium is undertaken by the very same review group, with the same expertise, advice and review panels, as has taken place throughout this process. That independent process has approved that not only have these investors committed the equity and working capital but they also meet all of the criteria set out from the outset in this process.”

As reflected in my coverage this week, such parliamentary scrutiny of the National Broadband Plan until 2019 was led by Fianna Fáil, particularly its communications spokesperson Timmy Dooley (who has since lost his seat in the Dáil and become a senator), with support from his Green counterpart Eamon Ryan and other TDs including Catherine Murphy.

Fine Gael finally rushed the much-delayed contract across the line before the February 2020 election, which did not return the expected result.

With Micheál Martin as Taoiseach and Ryan the minister now in charge of making the signed NBP contract work, Fianna Fáil and the Greens no longer apply public political pressure on the contract’s implementation. Murphy still does, as did Sinn Féin leader Mary-Lou McDonald on the back of my coverage this week. This, however, has not replaced the sharp eye of a heavily rural voter-dependent Fianna Fáil looking for points to score from the opposition benches.

Yet there is much to scrutinise. As highlighted by Chambers two years ago, OHA, Tetrad and McCourt were indeed the same investors in Enet, the private contractor selected over a decade ago to operate dozens of state-owned metropolitan area networks – the wholesale infrastructure supporting broadband connectivity in cities and towns.

The group of investors bought Enet from its founders in 2013, only to exit after four years for OHA and five years for Granahan McCourt and Tetrad. Enet is now owned by the state-backed Ireland Infrastructure Fund, which channels private investment into the sector.

In an opinion article in The Irish Independent last month, David McCourt extolled the virtues of long-term investment, admitting: “I wasn’t able to accomplish this at Enet, an Irish company I owned with Walter [Scott, founder of Tetrad], because I waited too long to put long-term capital in place.”

He doubled down a few days later in an interview with The Clare Champion on the occasion of the launch of his charity Rise, saying about rural broadband delivery: “That is something that’s hard to do, takes a long time and takes a commitment over a long period of time.” He added: “Capitalism is under fire around the world for good reason. They’ve gotten too good at extracting profit and not contributing back to the community and they’re too short-term thinking.”

So what did McCourt do immediately after exiting Enet to set his eyes on the bigger prize of the National Broadband Plan? Rinse and repeat. After losing the support of respected infrastructure groups SSE and John Laing, as outlined by Chambers above, he signed the contract with the same backers as he had in Enet. OHA, a hedge fund manager focused on short-term gain from high-interest credit deals, provided the bulk of the funding. The addition of (presumably) Twin Point Capital is unlikely to change this investment outlook – the firm was founded by former OHA employees.

The criticism of short-term investment in McCourt’s recent media appearances would have been welcome if it had come as an acknowledgement of the lack of investor commitment to date apparent in accounts filed days apart by NBI companies, along with a disclosure of the steps he was taking “to establish a long-term capital structure that recognises the maturity of the project”, as a spokesperson for Granahan McCourt finally put it on Thursday. Instead, McCourt’s Independent column attempted to deflect attention towards the previous owners of Eir. It still makes me wince every time I take a fresh look at it.

I asked McCourt to address the gap between his public statement on long-term investment and the five-year-horizon, high-interest, high-fees financial model emerging from the accounts of the business. His spokesperson now says the appointment of PJT investment bankers by Granahan McCourt is with the aim of “exploring options to support its and NBI’s long-term vision for NBI”.

This strikes me as the kind of exploration you do before signing a €3 billion, 25-year contract, not two years later. I understand the options being explored now include one or several of NBI’s current investors getting out.

What worries me even more is the abysmal response from the Department of Communications to my questions this week. Privately-held companies have the right to keep their business secret, but the state body tasked with paying them multi-billion-euro subsidies should be able to explain to the public where that money is going.

On Monday morning, I exposed the financial details reported later this week to the Department’s press office and asked the following questions:

“Was the Department of Communications informed of each of the facts above before signing the NBP contract with the NBI consortium?
“Is each of the facts above in compliance with the NBP contract?
“Specifically, then Minister Bruton told the Dáil on May 21, 2019: ‘The Minister will have the right, through those contracts, to enforce the equity commitment on behalf of the project. This committed equity from the bidder will be invested ahead of the Government subsidies, thereby placing this investment at risk first.’ Was this right removed from the final contract before signature, or not enforced by the Minister in 2020?
“Can the Department of Communications identify the investors associated with Hamid Akhavan-Malayeri?
“What guarantees does the Department have that operations will continue if any of the investors withdraw their financial support by calling their shareholders’ loans before the broadband roll-out is complete, as they are entitled to from January 9, 2024?”

It was only after the publication of my first article on Tuesday that I received the following reply:

“The ownership structure of NBI (National Broadband Ireland) remains as advised to the Department of the Environment, Climate and Communications at contract award (November 2019) and updated at the Effective Date (9 January, 2020) of the Contract. The Contract specifically provides that the Minister’s written consent is required for a change of ownership.

“In terms of the article published today [in The Currency], it should be noted that NBI has confirmed to the Department that:

“Telecom Infra Mgmt LLC is not an investment vehicle for OHA. It is an entity, which is jointly owned by Tetrad Corporation and Granahan McCourt Capital LLC.
“Aligned to its equity interest, OHA has contributed 49 per cent of the total shareholder investment into NBI.”

There has been no other reply to date, leaving multiple questions unanswered. This is in line with the government’s refusal to provide a percentage breakdown of the ultimate shareholdings in NBI when asked by Social Democrat TD Catherine Murphy last month.

It is also apparent in the statement above that the Department was dependent on confirmation from NBI to reply to my question on the ownership of Telecom Infra Mgmt LLC. Either the government is not up to speed with what is going on inside NBI, which is scary; or it doesn’t want the public to know, and it is sinister.

The excuse that information cannot be released because it is “commercially sensitive”, as labelled in hundreds of redactions from the NBP contract, died when NBI was left as the sole bidder in the final stretch of the procurement process.

There might be a great plan somewhere to make NBI work. Maybe its shareholders want to convert all their debt to equity instead of cashing out tens of millions of euro in short-term interest and they will stay for the long haul, collecting their fair share of returns once people like me happily pay for decent connectivity across rural Ireland.

Or maybe the delays in rolling out broadband to rural addresses (and, consequently, commercial returns) have already exhausted the patience of some investors and the current advisory process is looking to replace those preparing to run away.

We simply don’t know. And we should, because we are paying for it.