Helios Towers plc (OTCPK:HTWSF) Q3 2022 Earnings Conference Call November 3, 2022 5:30 AM ET
Tom Greenwood – Chief Executive Officer
Manjit Dhillon – Chief Financial Officer
Conference Call Participants
Jeremy Dellis – Jefferies
Alex Roncier – Bank of America
Stella Cridge – Barclays
Dmitry Ivanov – Jefferies
Welcome, everyone to the call. Good morning and good afternoon, really great to speak to you today. I’m on page two of the slide deck and we’ll present to you now our Q3 performance, so with me, as always, Manjit Dhillon, our CFO; and Chris Baker-Sams, our Head of Strategic Finance and Investor Relations.
So moving on now to page five, the key highlights. I’m very pleased to present to you these strong performance and earnings today. And I think what we’ve seen so far this year is continued strength in terms of our organic business and also obviously, our inorganic business as well folding in as we go through the year. So year-on-year site counts up 24%, 18% on tenancy growth, and 9% and 7%, respectively on the organic side. Already having completed almost 600 new build-to-suit sites so far this year, which is actually a record in the company history.
And this translates in the strong financial performance that we see here 25% on the revenue and 18% on the EBITDA, organic being 14% and 10% year-over-year, which we’re very pleased with. As we’ve seen a bit this year, there has been a bit of margin dilution which continues. It’s largely driven by a mixture of the acquisitions, which come on board with a lower margin.
So one obviously then to build that later, but also some increases in power prices, which actually mean that both our revenues and our OpEx go up, because of the strength of our contracts and the contractual nature, and we pass a lot of these OpEx increases on the power prices through to our customers. So what you’re seeing here is a dynamic whereby for a given absolute dollar figure of EBITDA, when you have both revenues and OpEx a bit higher, the margin naturally or mathematically comes down a bit. And that’s what you’re seeing here at Towers. So what it means is our contracts do work and we are protecting ourselves from the increased prices, particularly fuel, which is obviously driven largely through the price of oil.
Moving on now to Oman, Oman which we announded about 18 months ago, very pleased to say that we receive the royal degree for a license a couple of weeks ago and now are in full closing mode. So we expect to close that within the next four to six weeks, and really get ourselves ready for a full-year next year, which is very exciting. Obviously all of the financing already in place for that.
And lastly, here we are increasing or tightening upwards our tenancy guidance for the year. As you can see, we’ve had a strong year so far, and we have a very good pipeline for Q4. And indeed, we have a very, very — I would say, strong pipeline building now for next year as well, which is setting ourselves up for 2023. So we’re seeing some good demand, to be honest, from a multiple markets and multiple customers, which is always good to see.
Moving on now to page six, and just here we see graphically largely what I’ve just talked through. And really what you can see here is the effects of largely our expansion strategy that we’ve been doing on geographic expansion over the past couple of years, whereby you see the tenancies absolute figures going up. The tenancy ratios, they’re getting diluted a bit from 2.1 times in 2020, about 1.9 times now, and that’s obviously the impact of the new markets coming on board with a lower tenancy ratio, and therefore building up going forward or loading up the under-utilized assets going forward, which is we’re very much doing on the sales front right now.
You can see the same dynamic there on the EBITDA, absolute EBITDA obviously going up. Margin dilution had a little bit of an impact there as well from the fuel prices, so power prices this year and then a similar trend there on the portfolio free cash flow. So, all very much moving in the right direction, aligned with expectations and building ourselves up for future growth.
Turning on page seven, and a little bit more of a deep dive into the Oman expansion, which as I mentioned, we’ve been building now for about 18-months, since we announced it last year, seems very much in place. And Philippe Loridon and Ramsey Koola, you can see here on the page, have been the regional CEO and the MD leading that, so obviously with the support from many others around the Group.
I was actually in Oman, over the past couple of days, meeting the team and meeting some key stakeholders there, including all of our customers, which include Omantel, Ooredoo and Vodafone. And again, we’re very much planning for next year, now it’s under how we can support the mobile operators in that market actually even more coverage and capacity requirements. So obviously, with 5G, very much on people’s mind there that drives the need for a significant densification of networks, so we’re very much ready for that.
And then moving on to page eight, a quick touch here on our sustainability business and again a reminder that a few months ago, we were very pleased to be awarded our first ever MSCI rating, which is a AAA, and of course, we are now included in the FTSE4Good Index as well.
I’m also very, very pleased to say that our South African business has achieved the top level there for broad-based Black Economic Empowerment, and this is — this reflects the — our dedication to driving that agenda in South Africa. We recently brought on board and a new local investor, Clearwater Capital, and obviously, there you can see our South African team, so great work from South African colleagues there.
Now, I’ll hand over to Manjit, to take us through the next section.
Thanks, Tom. Hello, everyone. It’s great to speaking with you today. I’ll be going through the financial results. And so starting on slide 10, continuing on from what Tom mentioned earlier. Despite the broader macro volatility we are seeing across the globe, we’ve had a strong nine months of the year, reflecting continued organic tenancy growth and double-digit organic adjusted EBITDA growth, which is all complemented by our acquisitions completed in Madagascar, Malawi and Senegal, last year.
On this slide, you’ll see we’ve summarized the main KPIs, which I will be talking through in more detail over the next few slides. But in general, we’re seeing continued financial and operational delivery and good growth across a number of these key metrics.
So jumping into the details. Moving on to slide 11, our sites and tenancy growth, we’ve seen strong organic tenancy growth in Q3. From a site perspective, we’ve seen a 24% increase year-on-year, reflecting organic growth of 894 sites and 1,213 acquired sites across Madagascar and Malawi. And in fact, we’ve already added more sites organically this year than we had in any year historically, and that really does reflects the resilient structural growth opportunity across our markets.
Year-on-year, we’ve added 3,142 tenancies, which is an 18% increase from Q3 2021. Organically, we added 1,448 tenancies and inorganically 1,692. Our tenancy ratio has dropped slightly on a Group basis and that is largely driven by the lower tenancy ratio of the acquired sites in Madagascar and Malawi, which combines have a tenancy ratio of 1.4 times.
Excluding these acquisitions though, our tenancy ratio has slightly decreased by 0.04 times year-on-year, and that really reflects the strong site growth across our markets, which I’ve just spoken about. But ultimately, the increased site base and that’s a large base for driving lease-up and therefore returns going forward.
Onto slide 12, we’ve seen continued growth in revenue and EBITDA, the 25% revenue growth and 16% EBITDA growth year-on-year, up 15% and 11% organically, respectively. The revenue growth is principally driven by tenancy additions, in addition to CPI and power price escalations, which I’ll come on to on the next slide in more detail.
Adjusted EBITDA grew by 16% year-on-year, again driven by our organic tenancy growth in contributions from our new markets. Our EBITDA margin declined 4 percentage points year-on-year to 49%. The impact is driven by the rising power prices that Tom just mentioned on which I’ll come onto on the next slide, but also due to entry into Malawi and Madagascar over the past year.
These acquired assets have a combined margin of 30%, reflecting the lower and initial tenancy ratios of those assets, which we of course expect margins to expand over the medium term as we lease up and better utilize those tower assets.
So moving on to slide 13 and here we set up walkthroughs of our revenue and EBITDA progression for Q3 year-on-year. The first four bars of each bridge organic tenancy growth, power escalations, CPI escalations and FX, all combined to make up organic growth and acquisitions on the far right-hand side have been the contributions from new markets.
Organic tenancy growth of 1,448 year-on-year has really driven 9% at both revenue and EBITDA, now you can see on both the bridges. But I want to take a quick minute to focus on escalation movements. As a quick reminder, we have escalators in every customer contract in all of our markets.
For power 50% of our contracts, of course, the power price escalators and 50% have annual power price escalators. These escalate in relation to the local pricing for fuel and electricity, so if the prices go up, then the escalators go up, and if the prices go down, then the escalators go down.
For CPI, we have annual CPI escalators and they kick-in around January. Year-on-year we’ve seen that the — that’s on average local fuel prices have increased by 39%, and this is principally driven by DRC, Tanzania and Ghana, which have accordingly increased revenues of 7% with some further escalations also expected in Q4. We have a robust business model by design, so we’ve structured the increasing revenues to effectively offset the increased OpEx, due to higher power prices to really protect our EBITDA on a dollar basis.
And on the left-hand side, you can see that the power revenue of $8 million from revenue falls through to EBITDA at $1 million on the right-hand side. So from a margin perspective, there is some dilution of EBITDA margin on the power price is lower than the overall Group margin, and in this case, diluted margin by 2 percentage points.
However, in the year of macro volatility where we’re seeing 39% power price increases, we’ve been able to keep our EBITDA from power flat/slightly up, I mean that our contracts are escalating effectively and offset the OpEx impact of higher fuel costs.
Moving on to CPI and FX. Local CPI is currently around 9% across our markets with revenues up 3% from our CPI escalators. These escalators occur annually and principally in the earlier part of the year, so we see escalations kick-in capturing more of the CPI movementss as we go into the new year, but this increase from escalators has broadly offset any FX depreciation, which is actually also well managed by the fact we’ve set up the business such that the majority of our revenue and EBITDA is in hard currency. So whilst we see some FX depreciation in Malawi and Ghana, in particular, these are currently having a limited impact on the overall Group results.
We will, however, see some increased volatility and garner in Q4, and we do expect there to be a little bit more FX impacts as we go into the quarter. But overall, this is a small part of the overall portfolio, and again, our CPI escalators will mitigate this when they kick-in in early 2023. But I think both of these bridges provide a useful demonstration of the business to Calix and standing back and looking at this from an EBITDA level, the key driver of growth is tenancy additions, both organically and inorganically.
Previously, at the Capital Markets Day, we showed that however, the last six or seven years, our EBITDA growth is highly correlated to tenancy growth with little to no correlation to FX or oil prices. And this area is a further demonstration of our robust business model and our earnings growth being driven by tenancy additions and being well protected from macro volatility.
So with that, we go to slide 14, and here we show the usual breakdowns provided which are very consistent with previous updates. We have a robust business model underpinned by long-term contracts with a diverse customer base and have strong hard term currency earnings. 98% of our revenue comes from large blue-chip mobile network operators, who are largely investment grades or new investment grades comprising mainly Airtel Africa, Orange, Axian and Vodacom.
Our largest single customer exposure is 28%, and that’s actually spread across five different markets, so very well diversified. We have strong long-term contracts to our customers, and at the end of Q3, we have long-term contracted revenues of $4 billion with an average remaining life of seven years, and this is up from $3.7 billion at the end of Q3 2021. This means excluding any new rental rollout we have that revenue contracted, providing a strong underlying earnings stream for the business.
We also have 62% of our revenues in hard currency being either U.S. dollars or euro pegged. As a reminder, this will increase to 67% pro forma for the announced acquisitions, which translates to 72% when looking at it from an adjusted EBITDA perspective. But overall, this provides a fantastic natural FX hedge for the business, again complemented by our inflation escalators we have in our contracts.
Finally, on this slide, I’ll just mention with the new market expansion, we’re seeing a more diversified split of revenue per market, and pro forma for the acquisitions, no single market will account for more than 32% of revenues.
Onto slide 15, and here we have a look at CapEx. For the year-to-date Q3 2022, we have incurred a total CapEx of $214 million, which includes $63 million of acquisition CapEx, principally related to our entry into Malawi. As mentioned earlier, we are updating our tenancy guidance to the top of the previously communicated range of 1,400 to 1,700. Consequently, we are also updating our organic CapEx guidance to reflect the increased tenancies and now target a range of $180 million to $200 million, of which $152 million has already been spent year-to-date.
Just to be clear, the update here with CapEx is purely linked to the guided number of tenancy and it’s really just a function of the costs associated with increased tenancy rollout. For acquisition CapEx, the guidance is consistent at $650 million, which reflects the acquisitions across Oman and Malawi in addition to some deferred consideration for our Senegal and Madagascar acquisitions. And again, this remains unchanged.
As highlighted in the previous quarter, 30% of our $575 million Omantel tower acquisition will be funded by our local minority shareholder Rakiza after adjusting for any pro-rata local debt that they will raise. So when we close the deal, we see that as a cash inflow into the cash flow statement at year-end. So from a cash perspective, let’s say the output of funds for the Omantel will be less than previously guided.
Moving on to slide 16, which shows a summary of our financial debt. Our net leverage at Q3 was 4.1 times and continues to be within the medium-term range of 3.5 times to 4.5 times. We expect this to tick up to be around the high-end of the range as we close the other markets during the course of the year, but expect ample headroom against our financial covenants.
As it stands today, we have circa $700 million of available funds which is sufficient for announced acquisitions, which are due to close and our organic growth for which our established markets are probably self-financing. But I think we sit here in a very strong balance sheet with long-tenure debt with the nearest maturity for group that’s not until December 2025. Our drawn debt has an average remaining life of four years. We also have very limited floating exposure with 96% of drawn debt at a fixed rate, , again giving us good protection against a rising interest rate environment. So overall, we’re in a great position to say that if we do — choose to do any refinancings or financings, we’ll be doing this for strategic reasons.
And finally, a quick comment on our market is that six of our markets have either been upgraded or moved to improved outlook during the last year by one or more credit rating agencies, including our two largest markets, Tanzania and DRC, with Ghana being the only market downgraded.
And moving on finally to slide 17, as mentioned earlier, given our robust tenancy growth and pipeline, we’re pleased to say that we’ve tightened our organic tenancy guidance upwards and the Group target organic tenancy additions of 1,400 to 1,700 in 2022 from a previous range of 1,200 to 1,700. This implies will have one of our best ever years on record in terms of organic tenancy growth, and from a financial perspective, our lease rate per tenant is tracking in line with guidance up 3% year-to-date and is trending towards the higher end of the range with Q3 ‘22 lease rate per tenant up by about 5%.
Also as discussed earlier, due to higher power prices, we’ve also updated our margin guidance for year ‘22 to 50% to 51%. But all in all, we are broadly progressing to plan and expect to deliver one of our best-ever years of tenancy growth.
And with that, I’ll pass back to Tom to wrap up.
Thank you very much, Manjit. So I’m on page 18 now, and really the key takeaways for me, of our performance year-to-date and our outlook for the rest of the year, tenancy growth clearly being strong and that’s continuing literally at this minute with sites being rolled out every day as we speak.
And again as I mentioned before, we are now building a pipeline for next year, which is always good to do at this point of the year. I’m very pleased to say that Oman will be closing in a matter of weeks now, setting us up again for the enlarged platform for the full-year, next year, which is very exciting news. And again just to reiterate outlook next year, definitely building and looking strong across the enlarged platform.
I think it’s worth just reiterating what Manjit went through in terms of the robustness of our business model, as well as the structural growth that we clearly have in our markets. I think page 13 really demonstrates how resilient our EBITDA is given the contractual protections that we have in our contracts obviously, for inflation, for power prices and for FX. So all in all, we’re pleased with the performance so far this year and looking forward to the months and years ahead.
So with that, I’ll hand back to Adam, the co-ordinator and we’ll be open for Q&A. Thank you.
Thank you. And our first question today comes from Jeremy Dellis from Jefferies. Jeremy, please go ahead. Your line is open.
Yes. Good morning. Thank you very much for taking my question. I’ve got two questions, please, and firstly, when we think about the trajectory of CapEx, excluding acquisitions beyond the sort of current year, so the starting point is $180 million to $200 million in 2022. As we move forward, obviously, it’s an enlarged group. So I think you’ve previously guided more of the tenancy growth would come from lease-ups as we go forwards, so a framework to think about how we should be modeling CapEx into next year, please?
And then second question has to do with DRC. You obviously read in reports, sort of, taxation dispute between the government and the mobile network operators. Could you clarify for us, please, why that sort of stuff can’t happen to Helios? Thank you.
Thanks, Jeremy. And Manjit, do you want to take the first one on the CapEx guidance and then I’ll take the next question?
Yes, sure. Hi, Jerry. So with regard to CapEx for 2023, we’ll give more detailed guidance when we give our next year update, the full-year result. But in short, one thing that we set out during the Capital Markets Day is really how you model CapEx going forward into the medium term. Effectively as you rightly say, we will be expecting over the next few years that switch from build-the-suite to co-locations. And so we will find that probably being more colocation than what we found this year, which has subsequently reduced the amount of CapEx that will have.
One thing that we just broadly guide towards is closing 10-K for a colocation of $125,000 for a new site and then we’ll also do incremental spend in terms of Project 100, which is the project that we’ve got to reduce our carbon emissions, which will also have a financial benefit. We expect that about circa $10 million per annum. And then, obviously, we’ll have some incremental upgrade work, also on the new acquisitions and we’ll announce that in the beginning of every year as well. But broadly, we expect it to be about $15 million to $20 million for 2023.
On top of that, we’ll have some non-discretionary CapEx as well, which relates to maintenance and corporate, and that’s typically been around $3,000 per site. So when you bring all that together, it will be broadly around I’d say the $150 million mark, if not a bit higher in 2023, but as we go through the medium term, you will find it probably bouncing around that number. But again, we’ll give more detailed guidance when we give our full-year results.
Thanks, Manjit. And Jerry, yes, just on the point around the fact, yes, no, I mean we’ve been following that obviously in DRC. Yes, look, I mean, I guess power costs are generally just simply a lot less relevant and sort of a lot more almost under the radar, if you like, for authorities and — but you know, we’re very much comply with all of our taxes across the Group, always have done, always will do. And we have good and local relationships with the tax authorities, that’s very much our resource.
And we ensure that we pay the taxes as and when they are due and you know, I think we’ve always done that. And like all companies sometimes have disagreements with the tax authorities, that’s normal, but it’s about how you resolve this and how you discuss it openly in another couple of way, and that’s our resource. So we’ll continue doing that, and I’m sure that we’ll continue to have good relationships with all authorities across our markets.
That’s clear. Thank you very much.
The next question comes from Alex Roncier from Bank of America. Alex, your line is open. Please go ahead.
Hi, guys. Thank you for taking my question. Just one on maintenance CapEx, if you could maybe come back on why such a strong phasing during the year and the strong ramp up, we should expect given the $30 million guidance for the full-year? And why such a ramp-up in Q4? Why not more evenly spread across the year? And if we should expect some kind of similar seasonality in the following areas?
And then another question, just regarding M&A. And obviously, you’ve taken like a little bit of a step back. I think from the Capital Market Day, you’re obviously focusing on your current geographies and closing the last two deals you’ve had in the pipe. But I’ve read across the price that you had Ooredoo considering at some point perhaps selling towers. Would you be actually interesting in such a big portfolio and changing meaningfully your scale across Middle East? Would that be something?
And if not, what would be the, you know, intentions to do such a deal? What would be the things that would stop you for going across or considering even such a deal per se? Thank you.
Thanks very much, Alex. Yes, maybe I’ll just take both of those. And the maintenance CapEx, we obviously give guidance on a yearly basis as mentioned that about $3,000 per site per year is the rough guide. Look, it is seasonal. It is a bit lumpy. And a lot of the CapEx is driven as to when generators come to the end of their life and when batteries come to the end of their life. And so we monitor that obviously constantly. That’s part of what our operational teams do.
And a generator can typically last for anywhere between 20,000 to 40,000 hours and batteries sort of three to five years, some of the new lithium one last 10 or up to 10 which is good. So it’s really just due to when our existing fleet of generators and batteries in replacing, that’s the largest driver for that and that’s mainly — it gets a bit lumpy. What we typically would recommend though is if you want to, sort of, normalize, you maybe take the last 12-months view of it, and that’s what we — that’s probably what we recommend just to see a smoothing of it.
Yes, on M&A, I mean look, as communicated earlier in the year at our Capital Markets Day, we are very much focused right now on integration and really getting the new markets upto the high level of business excellence standard as our existing markets and really starting to drive the lease-up on the new towers we’ve acquired and therefore the margins and returns. And that’s very much happening right now and obviously, we’ll be folding Oman in the coming weeks, as well and then betting that down for a bit.
As a prominent tower company in the Middle East, Africa region, we’re always very much aware of all the deals going on really at any given time. And we have a business development team whose role it is to look at deals that come through and assess them for reasonableness or appropriateness or alignment with our strategy and our focus, and that very much continues today as it did a year ago or two years ago, that doesn’t stop.
Remember deals of these nature typically take two years or so to come to fruition, so working on a deal today means that something maybe happens in end of next year or 2024. But I think in respect of the deal you specifically mentioned, clearly, we know about it — everyone does. You know, I think we take a very disciplined approach to assessing individual markets, and you know that’s always what we have done and that’s always what we will continue to do for all deals including this one.
So obviously I can’t give any details on that, but just really reiterating, we take a very disciplined view and we have our acquisition criteria, which we published as well and we’ll continue to do that. But from a strategic point of view still very much focused on integration, organic growth, getting the lease-up going in the new markets, and right now, going into next year, so no change in that respect.
Okay. And maybe just one follow-up if I may. And because we’ve — I heard some of your peers, perhaps taking a step back from actively engaging in M&A or even considering M&A given the current year macro environment. But that’s not really what you’re saying. You’re mostly saying you continue to assess whatever comes on the table for their own merits, and it’s not like given the current rate environment or your discussions with banks on financing that you see any problem into potentially actually growing the business inorganically.
Well, I’m not saying that. I’m saying we look at deals that are happening, and if anything, it’s always a learning experience, right? So we have a business development team. They are doing, as always, a very good job. And the job of the business development team is not always to buy everything or win every deal. It’s to assess every deal, learn about it and understand whether that could be a good fit for Helios. And that very much continues today and I think that’s the right thing to do rather than burry your head in the sand and not know what’s going on. And I very much prefer to know what’s going on and then we can make the right decision as and when stuff comes up.
But as I said before, very, very disciplined and the strategy has not changed since earlier in the year. We’re very focused right now on organic growth, integrating with deals we’ve announced and betting everything down. And that runs through into next year as well.
Okay. Wonderful, Tom. Thanks for the color.
Thanks, Alex. Cheers.
Our next question is from Stella Cridge from Barclays. Stella, your line is open. Please go ahead.
Thank you. Good morning, everyone, and many thanks for the presentation. And I wanted to further ask on a couple of areas. The first is, you’ve given the Oman transactions that was closed quite soon. How is the funding plan looking for that? And are you close to kind of getting that finalized? And just in terms of split between new borrowing and existing cash usage, how much would you like to keep on the balance sheet and cash? That would be great.
The second was just in terms of the move in the net debt quarter-on-quarter and over and above the disclosed items in the release, you know, was there a working capital outflow, for example, that would explain that, that increase in net debt? And what would be the outlook for that going into Q4? That would be helpful as well. Thanks.
Thanks, Stella. Yes, I’ll take that.
Manjit you take that, yes.
Yes, perfect. So in terms of the funding plan, we’re still in the process of finalizing that. But ultimately, we do expect to have a local facility also raised in Oman. We’re actually finding in that market at the moment we can actually get some very, very competitively priced debt long tenure as well. So we’ll look to do something that — which will mean that we’ll probably raise something in the region of approaching north of EUR150 million is what we’re looking at, at the moment. And that will ultimately reduce the debt that we’ll draw from a group perspective. But that would all be confirmed as of when we close that transaction.
But again, I think one of the positive areas that when we look to do the financings, we’re doing it for a strategic reason. We’ve got financing in place already, so we can really pick and choose which financial facilities that we utilize. So all going to plan. In that case, in terms of balance sheet and cash. So we’ll draw a bit from our cash facilities at group for the transaction. But again, that will be minimized versus the drawdown that will take from a local facility, plus there are keys to 30% as well. So after all of this, we still would expect to have cash on balance sheet in of EUR100 million, which is normally where we’d like to be on any given period.
On the position around net debt, yes, it has slightly increased. I wouldn’t say this is a working capital issue. In fact, we’ve actually had a debtor days reduced from Q2 to Q3. We’ve actually saw a lot of our customers paying, so no issues with regards to bad debts or net cost like that. So working capital is actually very much tightened. This is probably more linked to the fact that we’ve seen a bit of an uptick in terms of CapEx, so investing in the new site builds, and we’ll see that return coming through over the coming periods.
That’s fantastic. Many thanks. And since you’re planning to keep the EUR100 million on the balance sheet, perhaps not draw by the sense of any of the other loan facilities. And I just want to ask about the 2025 maturity. So something is still, you know, fair, fair well away, but I mean, just in terms of how you might think about setting yourself up to address that maturity in 2025. I just wonder what were you thinking? Were you sort of looking to potentially accumulate some cash from free cash flow or diversify the capital structure? And great to just hear some big picture thoughts on that.
Yes. I think at the moment, all options are really on the table. So probably, the answer is a better base. So a combination of accretive some cash up on the balance sheet. But also really at this point, we’re under no burning platform to go into a refinancing as you’ve also alluded to that. So we’ll continue to just sit on the debt packages that we have and we’ll continue to monitor the market. It’s clearly quite volatile at the moment. So actually being in a position where we have long tended debt, which is fixed actually is a bit of an outlier, which is a great position to be in.
So from our perspective, as we wait, the core premium also reduces, so we’ll drop by half next summer and drop to zero the summer afterwards. So we’ll just continue to monitor that. But we can either look to do a full refinancing in terms of bonds go back to accrete some cash and pay down the debt, and then to a smaller refi, but we could also utilize the bank markets across multiple markets as well.
So from our perspective, we’ll rates — we rate the core premium also reduces. So we’ll drop by half next summer, we dropped to zero this summer afterwards. So we’ll just continue to monitor that. But we could either look to do a full refinancing in terms of bonds. We could actually see accrete some cash and pay down a bit, and then to the smaller refi, but we could also let’s utilize the bank markets across multiple markets as well. So I think the positive — I take away from this that we’ve got multiple routes to refis and actually some strategic ones that potentially could continue to reduce our cost of debt potentially if the markets recover slightly.
That’s great. Many thanks to that answer.
The next question comes from Dmitry Ivanov from Jefferies. Dmitry, your line is open. Please go ahead.
Yes. Hi, can you hear me?
Yes, we can.
Yes, we can hear you.
Thanks. Thank you. Apologies. Thank you for the presentation. I have like two quick questions. First on this Ghana situation. I know that this was like less than 15% of your EBITDA, but I would like to check that the deterioration in Ghanian city which happened like from the end of September. You mentioned that you expect to be like small negative effect in Q4, which will be fixed by this CPI escalators from January. Just wanted to check with you if my understanding is correct is that this FX weakness is expected just to be cured by this embedded CPI escalation from January, that is my first question.
And my second question on funding mix and covenants. So you will use a mix of your existing facilities, if I understood you correctly, you have access to your term loan and RCF of $70 million, but could you remind us about your covenents? You mentioned that you still have a headroom under your facilities, but what is your, kind of, next year covenants and do you expect — do you have like any tightening in your covenent in the year 2023, 2024? So just want to understand any limitations in terms of the covenets next year. So thank you. Thank you very much.
Manjit, do you want to take those?
Yes, sure. Yes, so on the first one around Ghana, in short, yes, what we see is that with the FX kind of increasing as the year has progressed, first is when our CKSA first kicks-in, in January, there has been a bit of a widening. What we will find is that when the escalator kicks-in again in January 2023 we’ll recoup some of that. So in general, we’ll be able to get a bit of a protection against the FX piece in Ghana.
I’d also add there that in Ghana, the way our structure is set up, there is actually a portion of our revenues linked to U.S. dollars and often received in U.S. dollars, so there is also a added protection against the overall FX movement that we’re seeing at the moment, and that’s roughly around 20% to 25% of our revenues there. So in addition to the CPI, we also receive a portion of our revenues there in U.S. dollars.
In terms of the mix of funding, yes. So we ultimately have at the moment undrawn debt facilities at the Group level. We have a $200 million term loan, we have a $70 million RCF. We also have cash on balance sheet in excess of $300 million. And we also have some local funding lines as well. So the funding of Oman will utilize in general a mixture of either the cash on balance sheet plus term loan, either at group or at the local level. So that’ll be the way that we’ll be financing the transaction.
And finally, on covenants, we don’t provide any covenants disclosure. But what I would say is that when we talk about our target range between 3.5% to 4.5%, our covenants are in excess of that, and I’d say at least a turn in excess of that. So in general, we’re operating from a covenant perspective in excess of 5%. So yes, I think we feel very, very comfortable in that perspective.
Okay. Thank you very much for the clarification. Thank you.
You’re welcome. Thank you.
This concludes today’s Q&A session. I’ll now hand back to Tom for any concluding remarks.
Thank you very much, Adam, and thank you, everyone, for dialing in today, and thanks for your questions. As always, if you’ve got any follow-ups, you know, where we are so please get in contact and happy to jump on a one-on-one call with people. So do let us know, and very much look forward to talking to everyone in March when we will be releasing our full-year 2023, as well as providing more guidance for our 2023 year. Thank you, everyone, have a good day.