Consultation on change to Investment Policy

17 January 2022

DIGITAL 9 INFRASTRUCTURE PLC

("D9", the "Company" or, together with its subsidiaries, the "Group")

Consultation on change to Investment Policy

The Company announces that it has commenced a consultation process with Shareholders regarding potential amendments to the Company's Existing Investment Policy in the form of the New Investment Policy (as set out in the Appendix to this announcement).

The Existing Investment Policy (amongst other things) currently restricts the Company's ability to invest more than 20 per cent. of Gross Asset Value in any single asset or Investee Company via the Size Restriction.

It is proposed that the Existing Investment Policy is amended by replacing the Size Restriction with the New Size Restriction which will change the relevant threshold from 20 per cent. of Gross Asset Value to 25 per cent. of Adjusted Gross Asset Value.

In addition, it is proposed that the New Investment Policy, within the investment policy restrictions, uses a newly defined term "Adjusted Gross Asset Value" in place of the existing defined term "Gross Asset Value" to clarify that any third party debt drawn by or available to any Group company (which, for the avoidance of doubt, excludes any debt secured solely on any Investee Company) will be included in the calculation of the gross assets of the Company for the purposes of applying the investment policy restrictions, from time to time.

Further, the New Investment Policy seeks to clarify that:

1)    any further capital expenditure on maintenance or repairs to any existing asset or any expansion capital will not result in a breach of the investment restrictions; and

2)    in the event that an Investee Company develops or acquires an additional asset, which requires further investment from the Company, such investment will be considered separately and on its own merits, including the application of any of the investment restrictions.

Subject to the outcome of the consultation and the determination of the Board, a circular setting out details of the proposed amendments and notice convening a general meeting, at which the amendments will be proposed as an ordinary resolution, will be posted to shareholders, potentially in the week commencing 24 January 2022.

FOR FURTHER INFORMATION ON THE COMPANY, PLEASE CONTACT

LEI: 213800OQLX64UNS38U92

NOTES:

Digital 9 Infrastructure plc is an investment trust which invests in a range of digital infrastructure assets which help to deliver, inter alia, a reliable, functioning internet.

The Company's portfolio will comprise scalable platforms and technologies including (but not limited to) subsea fibre, data centres, terrestrial fibre, tower infrastructure and small cell networks (including 5G).

With its IPO in March 2021, to date, D9 has raised total equity of £750 million, investing the net proceeds into data centres, fibre networks and wireless networks:

·    Aqua Comms, a leading owner and operator of 20,000km of the most modern subsea fibre systems - the backbone of the internet - with a customer base comprising the hyperscalers and global carriers (April 2021);

·    EMIC-1, a partnership with a hyperscaler on a 10,000km fibre system from Europe to India (July 2021);

·    Verne Global, one of the leading Nordic data centre platforms, delivering high intensity computing solutions to its enterprise customers in a geographically optimal environment, powered by 100% renewable power - one of the most efficient data centres in Europe (September 2021);

·    SeaEdge UK1, a data centre and the UK's only landing station for the North Sea Connect subsea cable, part of the North Atlantic Loop subsea network, which includes D9's AEC-1 and AEC-2 cables, improving connectivity between the UK, Scandinavia and North America (December 2021); and

·    TETRA Ireland, the exclusive operator of public safety wireless networks across the Republic of Ireland (January 2022).

The Investment Manager is Triple Point Investment Management LLP ("Triple Point") which is authorised and regulated by the Financial Conduct Authority, with extensive experience in asset and project finance, portfolio management and structured investments. The Investment Manager's digital infrastructure team has a proven track record of over US$3 billion of infrastructure investments and, in addition, benefits from a panel of digital infrastructure industry experts with deep knowledge, relationships and involvement in a combined US$250 billion of digital infrastructure transactions.

The Company is focused on the provision of Digital Infrastructure integrated with green and cleaner power in line with UN Sustainable Development Goal 9: "Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation".

The Company's Ordinary Shares were admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange on 31 March 2021.

For more information, please visit www.d9infrastructure.com.

APPENDIX

RATIONALE FOR THE PROPOSED AMENDMENTS TO THE EXISTING INVESTMENT POLICY

The Company is seeking the approval of its Shareholders to make amendments to its Existing Investment Policy in order:

i)       to enable the Company to invest in Digital Infrastructure Investments which represent up to 25 per cent. of Adjusted Gross Asset Value;

ii)      to include a definition of "Adjusted Gross Asset Value" in place of "Gross Asset Value" for the purposes of applying the investment policy restrictions, from time to time (and the references therein amended, as necessary);

iii)     to clarify that the Company's investment policy, from time to time, should not restrict the Company from injecting further capital into an asset or Investee Company, if required, so as to ensure that the relevant asset or Investee Company is maintained or for expansion; and

iv)     to clarify that new, standalone assets developed or acquired by Investee Companies will be evaluated separately and on their own merits, including the application of the prevailing investment restrictions.

Investment into larger assets

Following its IPO in March 2021 and the two successful secondary fundraisings in June and September 2021, respectively, the Company has deployed (or committed) up to approximately £693 million¹, in aggregate, into its current portfolio of five assets.

The profile of the Company afforded by its admission to trading on the London Stock Exchange and the deployment of funds into investments such as Aqua Comms and Verne Global, in particular, has unlocked access to larger, more attractive investment opportunities, in many cases, of a similar scale to Aqua Comms and Verne Global. The Board and the Investment Manager believe that such larger assets can represent better value to the Company as acquisition opportunities. These opportunities fulfil the Company's Existing Investment Policy criteria, except with respect to the Size Restriction.

The Board and the Investment Manager believe that it would be in the interest of Shareholders for the Company to be able to pursue appropriate opportunities that represent a slightly larger proportion of Adjusted Gross Asset Value, particularly while the Company is in a growth phase, so long as such investment opportunities meet the Company's other investment criteria and the Company has sufficient capital.

The Company is committed to ensuring diversification of risk and the Directors believe that the New Size Restriction will still honour this commitment while providing additional flexibility in respect of the Digital Infrastructure Investments considered by the Investment Manager. Further, the New Size Restriction should not affect the aspiration for the Company's Ordinary Shares to be admitted to trading on the premium segment of the Main Market and listed on the FCA's Official List. The Board believes that the New Size Restriction is in line with current FCA guidance regarding the spreading of investment risk, which forms part of the eligibility criteria set out in the Listing Rules of the FCA.

Proposed inclusion of the definition of "Adjusted Gross Asset Value"

In terms of the Company's accounting policies, the Directors have concluded that the Company meets the definition of an investment entity for the purposes of IFRS 10. Under IFRS 10, the Company has undertaken the exemption not to consolidate and to hold its financial assets at fair value through profit or loss. Therefore, any debt arranged by a company within the Group but which is not the Company, itself, would not be included in the calculation of the gross assets of the Company for accounting purposes.

It is anticipated that any third-party debt arranged for the purposes of financing acquisitions, for instance, in the form of short-term credit facilities, may be put in place with D9 Holdco rather than the Company itself.

Accordingly, it is proposed that a newly defined term, "Adjusted Gross Asset Value" be used in the New Investment Policy (in place of the existing defined term "Gross Asset Value") to clarify and ensure that such borrowings at the D9 Holdco level are included in the calculation of the gross assets of the Company for the purposes of the investment policy restrictions, from time to time, (and references therein amended, as necessary) as would be the case if the accounts of the Company and D9 Holdco (or any other Group company) were to be consolidated.

Further, the Borrowing Policy (and related defined terms) has been updated to reflect that short-term third-party debt arranged for the purposes of financing acquisitions may be put in place with a Group company as well as the Company itself.

For the avoidance of doubt, intra-group debt between the Company and its subsidiaries, and the debt of Investee Companies (secured solely on those Investee Companies), is not included in the definition of borrowings for these purposes.

Capital expenditure on maintenance and repairs or expansion capital

Under the terms of its arrangements with Investee Companies or in respect of its asset acquisitions, the Company may have a contractual obligation to provide additional capital to fund repair, maintenance or expansion projects. In any event, the Investment Manager may advise that it is appropriate for the Company to undertake such capital expenditure in order to enhance or maintain the value of its investment in the relevant Investee Company or asset. Not undertaking such expenditure may lead to deterioration or underutilisation of the underlying assets which, in turn, may have a material adverse effect on the performance of the Company and its earnings and returns to Shareholders.

The New Investment Policy clarifies that such capital expenditure will not constitute a breach of the Company's investment restrictions.

Investment in new, standalone assets via an existing Investee Company

The Company's investment policy provides for investments into "scalable platforms and technologies". However, the Existing Investment Policy, in particular the Size Restriction, does not allow for the Company to invest further capital into an Investee Company (other than Aqua Comms) for the development or acquisition of further underlying assets if such Investee Company is valued at or above 20 per cent. of Gross Asset Value or if such further investment would result in a breach of that threshold.

The Board and the Investment Manager believe that a key factor in the selection of its current Investee Companies is the expertise of the respective management teams in operating the existing underlying assets, understanding their markets and customers' needs and identifying suitable expansion opportunities.  Many of the current Investee Companies are true platform investments which could benefit from expansion. The Company may leverage the expertise of an existing Investee Company management team by putting in place a management agreement under which the Investee Company is responsible for the management of a new, separate asset. However, the Board and Investment Manager believe that, where such assets meet the Company's investment criteria, it would also be in Shareholders' interests for the Company:

•     to support the development or acquisition of new, standalone, underlying assets by the Investee Company; or

•     where appropriate, to channel new investments into similar types of assets via the relevant Investee Company, in order to leverage existing management expertise.

The Board and the Investment Manager envisage that certain Investee Companies, such as Aqua Comms or Verne Global, may eventually act as intermediate holding companies for portfolios of specific types of assets (for example, fibre cables or data centres, respectively) into which the Company has invested. In such circumstances, the Investment Manager would procure that appropriate protections were in place to ensure that such assets are ring-fenced from the relevant Investee Company.  The diversification of risk, therefore, will come from "looking through" to the respective portfolios of separate underlying assets held by such Investee Companies, rather than the Company's investment(s) into the Investee Companies, themselves.

The New Investment Policy includes clarification that an investment into a separate, new asset by the Company through an existing Investee Company will be considered as a standalone investment rather than being aggregated with the Investee Company. This is particularly relevant in assessing the proportion of Adjusted Gross Asset Value invested in development or construction phase assets as well as the New Size Restriction. 

Notes:

1 - This also includes all investment, committed capital, expenses and dividends.

RISK FACTORS

The risk factors in connection with the Proposal are as follows:

Concentration of risk

The introduction of the New Size Restriction may have the effect of increasing the concentration of risk in a number of larger Digital Infrastructure Investments. If any such Digital Infrastructure Investment does not generate expected returns, or its value is impaired, this could have an increased adverse effect on the performance of the Company and its earnings and returns to Shareholders than would be expected with the current Size Restriction.

Further, if the Company applies for the Ordinary Shares to be included in the Official List and admitted to trading on the premium segment of the Main Market at some future date, it will be required to meet the eligibility criteria set out in the Listing Rules of the FCA, specifically the requirement under Listing Rule 15.2.2R for an applicant to "invest and manage its assets in a way which is consistent with its object of spreading investment risk". The Listing Rules do not specify any limits to the size of an investment company's assets and, while the Board believes that the New Size Restriction is in line with FCA guidance regarding the spreading of investment risk, if the Company's portfolio comprises a smaller number of Digital Infrastructure Investments with a more concentrated risk profile as a result of the New Size Restriction, the Company may not meet the relevant eligibility criteria which would, therefore, prevent it from pursuing such an application. This would prevent the Ordinary Shares from being included in the FTSE indices and could negatively impact the future liquidity of the Ordinary Shares and Shareholder returns.

Risk of the Proposal not being approved by Shareholders

There is a risk that the Resolution is not passed at the General Meeting (or any adjournment thereof). This would result in the Company being unable to make certain investments in attractive investment opportunities within the Company's current pipeline which would otherwise fulfil the Company's investment objective and policy, as well as limiting scope for the purchase of other assets which are not yet within the Company's pipeline. If the Company is unable to invest in attractive investment opportunities, this may have a material adverse effect on the performance of the Company and its earnings and returns to Shareholders.

PROPOSED NEW INVESTMENT POLICY

Investment Policy

The Company intends to achieve its investment objective by investing in a diversified portfolio of Digital Infrastructure Investments which provide key infrastructure for global data transfer (subsea fibre-optic networks, wireless networks and terrestrial fibres) and data storage (data centres), all of which contribute to facilitating global digital communication.

The Company is focused on the provision of Digital Infrastructure integrated with green and cleaner

power in line with UN Sustainable Development Goal 9: "Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation".

The Company will seeks to invest in assets or Investee Companies which typically have secured medium to long term contracts underpinned by high quality counterparties.

The Company will invests (directly or via subsidiary companies) in a range of Digital Infrastructure assets which deliver a reliable, functioning internet. The portfolio will typically comprise future proofed, non-legacy, scalable platforms and technologies including (but not limited to) subsea fibre, data centres, terrestrial fibre, tower infrastructure and small cell networks which meet the following criteria:

•  assets and Investee Companies which deliver communications, data transfer, interconnectivity and data storage;

•  assets and Investee Companies which derive a significant proportion of their revenues from high quality counterparties (meaning, for these purposes, companies (or their parent companies) which are included in the FTSE 350 (or equivalent) or which are investment-grade rated by a recognised grading agency) and/or a diversified portfolio of counterparties that, by reason of its diversity, is resilient and well placed to weather economic downturns;

•  assets and Investee Companies with high cash flow visibility and resilience, specifically from medium to long term contracts or from a diversified portfolio of shorter term contracts providing essential underlying services.

The Group will focuses, primarily, on Digital Infrastructure Investments where the assets (or Investee Companies which own the assets) are operational and, where appropriate, there is a contract in place with the end user and/or off-taker. Where suitable opportunities arise, however, the Group may provide limited funding during the Construction Phase or Development Phase of a Digital Infrastructure asset, in particular, on a forward funding basis where development risk for the Company is limited, subject to the restrictions set out below.

Investment restrictions

The Company will invests and manages its assets with the objective of spreading risk and, in doing so, will maintain the following investment restrictions:

•  with the exception of Aqua Comms, the Company will not invest more than 2025 per cent. of Adjusted Gross Asset Value in any single asset or Investee Company;

•  investments will be focused on acquiring a controlling interest (meaning more than a 50 per cent. interest) in the relevant investment assets or Investee Companies being acquired or invested in but can also comprise minority interests (where appropriate minority protections are in place);

•  at least 50 per cent. of Adjusted Gross Asset Value will be invested in developed markets, in particular (but not limited to), the UK, EU and US;

•  neither the Company nor any of its subsidiaries will invest in any assets or Investee Companies located in or with co-investment exposure to any Restricted Territories;

•  neither the Company nor any of its subsidiaries will invest in any assets or Investee companies using technologies or equipment under any current prohibition ruling by relevant UK, EU, or US authorities, unless such equipment is in the process of being removed in line with the guidelines of such UK, EU or US authorities;

•  the Company may invest a limited amount in assets (or Investee Companies which own assets) which are predominantly in construction, which typically will be undertaken via a forward funding arrangement which pays a return during the Construction Phase, with any investments which expose the Company to development risk limited to, in aggregate, no more than 5 per cent, of Adjusted Gross Asset Value, and the aggregate value of assets in construction or development being no more than 20 per cent. of Adjusted Gross Asset Value (such amount to be calculated as the aggregate value of all material construction or development activities, including forward funded developments, within Investee Companies);

•  neither the Company nor any of its subsidiaries will invest in any listed entities, or in private closed-ended investment companies or any funds of any kind; and

•  the Company itself will not conduct any trading activities which are significant in the context of the Group as a whole.

The investment limits set out above apply following full investment of the Net Proceeds. 

Compliance with the above investment limits will be measured at the time of investment and non-compliance resulting from changes in the price or value of assets following investment, the need to invest further capital in respect of maintenance or repairs to the underlying assets or the investment of expansion capital, will not be considered as a breach of the investment limits. Further, in the event that an Investee Company develops or acquires an additional asset, which requires further investment from the Company, or the Company chooses to invest in a new, separate asset via an existing Investee Company, such investment will be considered as a standalone investment, including the application of any of the above investment restrictions.

For the purposes of the foregoing, the term "Adjusted Gross Asset Value" shall mean the aggregate value of the total assets of the Company as determined with the accounting principles adopted by the Company from time to time as adjusted to include any third party debt funding drawn by, or available to, any Group company (which, for the avoidance of doubt, excludes Investee Companies).

Borrowing Policy

The Directors do not intend to use gearing at the Company level, other than utilising short-term revolving credit facilities for financing acquisitions (which could be at the level of the Company or a Group company (which, for the avoidance of doubt, excludes Investee Companies)), such borrowings to be at a Conservative level. Intragroup debt between the Company and its subsidiaries, and the debt of Investee Companies, will not be included in the definition of borrowings for these purposes.

Long term gearing is likely to be applied at an Investee Company level in order to enhance returns but will be at a prudent level, appropriate for the particular Investee Company and sub-sector.

Hedging and Derivatives

The Company will not employ derivatives for investment purposes. Derivatives may however be used for efficient portfolio management. In particular, the Company may engage in interest rate or currency hedging or otherwise seek to mitigate the risk of interest rate increases and currency movements.

The Group will only enter into hedging contracts and other derivative contracts when they are available in a timely manner and on acceptable terms. The Company reserves the right to terminate any hedging arrangement in its absolute discretion. Any such hedging transactions will not be undertaken for speculative purposes.

Cash management

The Company may hold cash on deposit for working capital purposes and awaiting investment and, as well as cash deposits, may invest in cash equivalent investments, which may include government issued treasury bills, money market collective investment schemes, other money market instruments and short-term investments in money market type funds ("Cash and Cash Equivalents"). There is no restriction on the amount of Cash and Cash Equivalents that the Company may hold and there may be times when it is appropriate for the Company to have a significant Cash and Cash Equivalents position.

DEFINITIONS