Digital 9 Infrastructure: Investec slams ‘shocking’ asset sale
Investec analysts have slammed the sale of Digital 9 Infrastructure’s assets as part of the investment trust’s wind-down, describing the process as “extremely poor for shareholders”.
Digital 9, once a darling of the infrastructure sector, fell into chaos after governance concerns and funding problems emerged throughout 2023.
The trust voted to wind down in March 2024, and has been slowly selling off assets in the process, as well as replacing its investment manager.
In recent weeks, Digital 9 announced the sales of two assets it owned, fibre operator Aqua Comms and undersea cable EMIC-1, both at significant discounts to what they had been previously valued.
Aqua Comms was sold for $48m (£39m), a 36 per cent discount to the valuation it received in June 2024, while EMIC-1 was sold for $42m (£34m), a 15 per cent discount to its valuation in June.
“Aqua Comms is most shocking, given the asset was valued at $283m at 31 December 2023, meaning the write-down was 83 per cent in just over a year,” said Investec analysts Ben Newell and Alan Brierley.
The news sent Digital 9’s share price tumbling down 25 per cent, leading the trust to have fallen more than 86 per cent in value since it floated in 2021.
“The 80 per cent discounts that Digital 9 has previously traded at suggest that the market got this about right,” added Quoteddata analyst Matthew Read.
The majority of the write-down for Aqua Comms was due to the company’s inability to fund expansion plans in Asia, which had been incorporated into the 2023 valuation.
The Investec analysts argued that the experience “clearly brings into question” the role of auditor PwC, the independent valuer, the trust’s board, and its former investment manager Triple Point, who “all signed off on what has been proved to be a fanciful valuation”.
“Triple Point were being paid fees on underlying assets, which clearly creates a conflict, and therefore the onus is on the board to ensure the valuation it signs off on is appropriate. Shareholders appear to have been failed by all of these,” the analysts added.
Investec also noted the “extremely concerning” levels of fees being paid on the sales of assets, with Aqua Comms and EMIC-1 racking up $5.4m (£4.4m) and $2.6m (£2.1m) in sales costs, which represent 10 per cent and 5.8 per cent of the total sale respectively.
High transaction fees have been an issue in previous transactions for Digital 9, with the previous sale of Verne Global racking up fees of around £26m.
“We understand that these fees were committed to by the previous board at the commencement of the sales process in early 2024 and fixed in nature, hence the eye-watering levels as a proportion of the ultimate consideration agreed. It is not clear whether the agreement could have been conceded or renegotiated,” added the analysts.