When nbn™, the entity building and operating Australia's national broadband network (NBN), announced it had secured a loan for AU$19.5bn from Australia's government, it looked like the network-builder had failed to convince lenders it was a decent customer.
The reality is a little different: minister for Finance Mathias Cormann told The Register that “NBN's 2017 Corporate Plan assumed it would source private debt financing for the remaining $19.5 billion needed to complete the rollout.”
Note the “assumed”, because Cormann's statement goes on to say “My clear and unambiguous advice from the Department of Finance is that they did not issue any instructions or directions to NBN on approaches to potential lenders.”
nbn™ was asked to do “necessary preparatory work” and seek “indicative rating appraisals from reputable ratings agencies.”
With those ratings in hand, “the Government carefully assessed all relevant options, including the option for NBN themselves to source private debt funding for the remaining AU$19.5 billion needed to complete the rollout.”
“Based on all the available information and advice we received, the approach chosen by the government is by far the most cost effective way to secure funding for the remaining roll out of NBN.”
“Indeed a Government loan on commercial terms represents the most cost effective way to raise the debt and secure the necessary funding to complete the rollout of this important national infrastructure project.”
“It will also provide NBN certainty that the full cost of funding for the rollout has been secured on the best terms possible.”
It's not remarkable that Australia's government can borrow on better terms than nbn™, which has a weak balance sheet that would almost certainly tip it into a high-risk-and-therefore-high-interest-rate category for any lender, no matter the upside expected to flow from its monopoly. The Government of Australia, by contrast, is already hundreds of billions in debt, but as a sovereign nation able to raise taxes is far more appetising to lenders and therefore gets better rates.
Cormann's argument is that by relieving nbn™ of the need to pay higher interest rates, Australia is giving the company a leg-up.
And also giving nbn™ management one less thing to worry about: when El Reg met nbn™ CEO Bill Morrow he seemed not to relish the task of arranging finance. Now all he needs to worry about is 21 months of super-intense rollouts at its fastest-ever implementation speed. ®
Bootnote: As part of El Reg's commitment to occasional world-class pedantry, we refer to the entity building and operating Australia's national broadband network (NBN) as nbn™, which is how the company describes itself. We use the acronym “NBN” to describe the network itself, as we deem it a proper noun. What Cormann puts in his statements is his business.