- Email: [email protected]
Financing satellites: easier said than done
£CONOI'd
ICS
MARKETS
Financing satellites: Easier satd than done St~phane Chenard Euroconsult
The finan,:ing of satellites, as of mosl: telecommunications equipment generally, used to b~'.: a simple thing: go'vernments would dip into the b'~asury, while the few private groups which owned satellites also had the cash t~:~rely on pure equity financing. Banks became involved to provide siml~lc hri,::lge loans when corporate Itreasurers preferred to l~::ave the cash untouchec ; the European Invcstmenl: Bank would occasionally finance Eutelsat, as is proper between governments. Cornmerci~l financing was brier'ly of irlterest to the satellite community in -the late' 1980s Then the aerospace: and satellite markets hit one of their cyclical downturns: that, and the failure of satellite ventures launched by IBM Corp., Federal Express and Rupert Murdoch, scared the bankers away-- and besides, interest rates were rising. Even Intelsat, with an impeccable credit rating, did not approach the money market until its first Eurobond issue of 1992
Recent history
The Wall Sb~eet effect
The last five years have been far more exciting. The cost of projects outgrew what even wealthy companies could fund internally, sending them back to the bank. More positively, deregulation and economic development opened new eldorados in Asia, while satellite television and mobile telephony became big business at last in Europe and the United States. A new crop of investors bought into satellites: often smaller, more entrepreneurial and visionary, better attuned to market trends, more familiar with commercial lending and generally short on cash flow. Interest rates were attractively low. Panamsat Corp. and Loral provided highprofile success stories for financiers to admire. Suddenly, bankers, stockbrokers, pension funds and even a few venture capital funds became big players in the satellite industry. The volume of public and private debt financing raised by satellite operators already reached $4.7 billion in 19!)6. In 1997, as Iridium Inc. and Globalstar raised most of their capital, it soared to $8.1 billion, about 6% of the total volume of private-sector lending to infrastructure projects. Companies venturing in the uncertain markets for mobile or multimedia services announced public offerings even before they had attracted equity partqers.
Moreover, 13 satellite operators and three multichannel satellite television companies successfully completed public offerings of stocks or bonds over 1993-97, rasing about $11 billion altogether. They made the satellite industry a known quantity on Wall Street, where major banks quickly hired satellite analysts and quickly overcame their wariness of exploding rockets and mysterious technology. By early 1997, the top 25 pension funds - among the major engines of U.S. and European stock markets - had invested nearly $1.:2 billion in satellite stocks and bonds, about enough to buy nine satellites. S!
~sion few rods :rs in the
So far, operators have moved cau-tiously on the public markets, raising relatively small amounts of: public equity compared to their private placements or bond issues. Their risk profile and short history usually earned them junk bond ratings, but most of these offerings were widely oversubscribed, and the industry now wants more. By early 1998, another 24 eompa-
AIR & SPACE EUROPE • VOL. I - No
I - 1999
~.E
C 0 .N..O.M.,CS............. ~......MARKETS =fferings by satellite operators ies, 1993-2001. (Doc. Euroconsult)
DESCRIPTION OF ISSUE
DATE Aug. 1993 Dec. 1993 1993 June 1994 Sept. 199__44 Dec. 1994 1994 Feb. 1995 June 1995 Aug. 1995 Aug. 1995 1995 Jan. 1996 Feb. 1996 Mar. 1996 June 1996 June 1996 June t996 Nov. 1996 Dec. 1996 1996 Feb. 1997 Mar. 1997 May 1997 June 1997 June 1997 )uly 1997 )uly 1997 Oct. t997 Oct. 1997 Oct. t997 Dec. 1997 Dec. 1997 Dec. 1997 1997 June 1998 July 1998 i~y @
1998 i998 -
$425.5 million bond offering $167 million share offering (35.8% of capital) $592.5 million $323.3 million bond offering $6.1 million stock offering (21.2% of capital} CD Radio Inc, (USA) $I,372 million stock offering (20010of cal~ital) British Sky Broadcasting plc (UK} $I 701.4 million Total $188 million stock offering (21.3% of capital) Globatstar L.P.(USA) $63 million stock offering (9.5% of capital) Echostar Corp. (USA) $275 million stock offering (19% of capital) Panamsat Corp. (USA] Orion Network Systems Inc. (USA) $56 million stock offering Total $582 million $210.1 million stock offering (9% of capital) United States Satellite Broadcasting inc. (USA) Iridium Inc. (USA) $238 million oona offering Globalstar L.P.(USA) $300 million oono offering Nilesat Satellite Co. (Egypt) $20 million stock offering (20% of capital] Asia Satellite Telecommunications Co. Ltd. (Hong Konq)......_$26_9miHio_nSTOCKoffering (27o/0of capital) PT Pasifik SatelJt Nusantara (Indonesial $73 million stock offering (14.7% of capital) $600 million oona offering Loral Space C-tCommunications CorD. (USA) APT Satellite Holdinas Ltd. (Hong K_ong) ......................... $147 million stock offering (25% of capital) Total $1,857.1 million $484 million bond offering Globalstar L.P.(USA) $710 million bond offering Orion Network Systems Inc.' (USA) $223 million stock offering Iridium World Communications Ltd. (USA) $325 million bond offering Globalstar L.P.(USA) $375 million bond offering EchoStar Communications Corp. (USA) $257.7 million bond offering Iridium Inc. (USA) $477.1 million bond offering Iridium Inc. (USA) $325 million bond offering Globalstar L.P.(USA) $300 million bond offering : Iridium Inc. (USA) $200 million stock offering ;;i EchoStarCommunications Corp. (USA) RT. Datakom AsW (Indonesia) $260 million bond offering Star Choice Communications Inc. (Canada] $150 million bond offering CDRadio., Inc. (USA) $175 million stock offering $4,261.8 million Total $540 million bond offering :: ~rai Space ~ Communications Ltd, (USA) $1,114 million stock offering des Satellites (Luxemburg) $I 20 million stock offering Lt& (UK} $570 million bond O~efing : iCOi i a i mun a ioosLtd.(UK) $2,344 million i $11,339 million Corp. (USA)
(1) Through Loral Space& CommunicationsCorp. (2) Financesthe Indostarsatellite system, formally operated by PTMedia Citra Indostar.
m
hies were planning (or said to be planning) 3ublic offerings, including some of the world's largest and most profitable operators, either to raise money or for valuation purposes (see table I]. In fact, it is worth noting tllat the industry's best-performing stocks of 1997 were those of development-stage companies, such as Iridium and Globalstar, which the market rewarded for meeting milestones while speculating on forecasts. Of the ten listed companies actually providing services, six lost value in 1997, some of them despite markedly improvinc their financiais; of: the four which gained value (including Loral Space ~t Communications Ltd., whose diverse activities make it les~ than a "pure play" operator), thre~ progressed more slowly than in 1996, and the year's real success story, Panamsat, gained much from a one-time event, its merger with Hughes. Debt and public equity, of course, are not patient money, and their greater use raises the stakes given the satellite industry's long history of missed deadlines and optimistic forecasts. Shareholder guarantees remain much appreciated; thus, Motorola guarantees $450 million of Iridium's debt. Perhaps uqsurprisingly given the scale of such investments, gathering equity takes years and structuring debt takes months. Faced with a plethora of satellite projects, re!tulators and potential investors and customers are tempted to put them on hold until they see serious financing on the line, creating a chicken-and-egg problem which can take a long tim~ to resolve. The availability of financing clearly remains a major barrier at the outset of most satellite projects. Wall Street analysts remain wary and nervous, castigating companies for falling behind their aast
projections even momentarily. Most recently, Panamsat's stock lost nearly 8 points in October 1998 after analysts misinterpreted the company's third-quarter results. Iridium's stock, after more than tripling in value in a year, lost about half its value over the Summer over reports of technical problems, in large part after mild criticism in a Merrill Lynch report (ominously captioned "reason for report: change of opinion.") As has been the case with satellite insurance in the past, a few high-profile failures may scare banks away. The commercial performance of mobile satellite operators Iridium, Globalstar and ICO Global, fraught with technical risk and to which banks are heavily exposed, will be watched especially closely in the next couple of years. The entire satellite industry will probably be punished if these companies fail.
saw their savings melt and inflation flare at a time when satellite television companies were already struggling with technical glitches and aggressive competition from cable, and generally revising their subscriber forecasts downward. Instability in Latin America and Russia compounds the industry's problems. The satellite industry is well placed to be hit by such upheavals. Satellite communications are part of the bricks-and-mortar of national development; some Asian satellite television projects, catering to tke supposedly affluent and rest-less middle classes of Jakarta and
)bile Iridium, Global, ical risk S are
ill be closely of years.
The Asia crisrs At the limit of the infrastructure and consumer markets, satellite operators were well placed to suffer from the'. Asian currency crisis as it unfolded in October 1997. Large devaluations hit southeast Asia just as operators in Thailand, Malaysia, Indonesia and Singapore were signing dollar-denominated leases to repay the debt carried by their new satellites; consumers in South Korea, Japan, Indonesia and Thailand - 1:o varying degrees -
Bangkok, may well fall in the same basket as the prestige investments in real estate and semiconductor foundries on which Asian elites spent so much without payin§ excessive attention to oversupply and competition. For better or worse, out of 75 geostationary communication satellites under construction at the end of August, 40% were intended for companies
Euroconsult 1998
~
AIR & SPACE EUROPE • V O L
I - No
I - 1999
ECO N O M ICS in "emergent markets" (i.e., not Western Europe, North America, Intelsat or Inmarsat.} Out of 160236 new satellites which Euroconsuit forecasts will be ordered through 2007, 53% will in principle serve such companies. So far, these tougher economic conditions have had relatively limited effects on the satellite market. Satellite operators raised only $5.7 billion in public or commercial debt or bonds in the first seven months of 1998, only 80/0 less than in the same period in 1997 (table II). SATIN, a satellite-related stock index published by Barclays Capital, lost 1.7% in the first nine months of 1998, even while the SUP 500 index {which tracks the New York Stock Exchange's largest stocks) still gained 4.8%. The summer's two satellite public offerings, by ICO Global and Societ6 Europ6enne des Satellites, proved small and unexciting. At least nine other public offerings, announced for 1998-99 by companies such as Malaysia's Binariang Sdn. Bhd., South Africa's Actel or Singapore-based AsiaPacific Mobile Telecommunications with a combined value on the order of $2 billion, have dropped from sight and may have to be replaced with private equity, loans, or plain patience. Even in southeast Asia, at the heart of the financial crisis, satellite operators have proven remarkably resilient. Thailand's Shinawatra Satellite plc, one of the worst-hit, got away with one quarter of losses. Transponder leases billed in dollars produced generous exchange gains. While over a dozen satellites failed to materialize after Asian operators
& MARKETS
had announced they would buy them in 1997-98, by the end of 1997 the Asian transponder market was showing signs of oversupply, making these projects likely to be deferred even in the best of times. Only two operators, in Thailand and Indonesia, both already having problems of their own, were pushed over the edge by the rising cost of credit and have had to suspend projects already under contract, causing 300 layoffs at Space Systems/Loral: not so bad compared with the massive bankruptcies which sweep the banking and automotive industries in Japan or South Korea. In the long run, the Asian financial crisis may well turn out of have a cleansing effect, weeding out visionary but shaky ventures, forcing greater deregulation in telecommunication markets, and prompting ope-
is have ~erience Justry take and before, .'state Europe mrly lOW even remit to )ased arket good Fen
rators to get help from strategic partners. Satellite projects may continue to pay at least indirectly for Asia's economic sins for some time, though no dramatic ripple effect is really in evidence. Banks welcomed a large bond offering in early 1998 by Mexico's Satelites M~xicanos, and the credit ratings of major operators like Panamsat and Iridium have been revised upward over 1996-97. However, lenders around the world have become wary of emergent markets and infrastructure in general; privatesector lending to infrastructure projects worldwide fell by 32010 over 1996-97, to $151.47 billion, according to a survey by Project Finonce magazine; and political instability remains as a complication in some key markets, notably India and Indonesia. technology or part of the world, without the security of shareholder guarantees, strategic partners, anchor tenants and transponder deals. The projects which will pass such tests will generally be good indeed. Over-cautious financiers may, of course, discourage inventiveness; but the satellite industry, febrile with V-band and mobile multimedia projects, has a long way to go before
conservatism becomes its major problem.
Authors contact information Stephane CHENARO, Euroconsult, 71, boulevardRichardLenoir,75011Paris Tel.: +33 [0}1 49 23 75 03 - Fax: +33 [0)1 43 38 12 40.
[email protected]
Im
ICS
MARKETS
Financing satellites: Easier satd than done St~phane Chenard Euroconsult
The finan,:ing of satellites, as of mosl: telecommunications equipment generally, used to b~'.: a simple thing: go'vernments would dip into the b'~asury, while the few private groups which owned satellites also had the cash t~:~rely on pure equity financing. Banks became involved to provide siml~lc hri,::lge loans when corporate Itreasurers preferred to l~::ave the cash untouchec ; the European Invcstmenl: Bank would occasionally finance Eutelsat, as is proper between governments. Cornmerci~l financing was brier'ly of irlterest to the satellite community in -the late' 1980s Then the aerospace: and satellite markets hit one of their cyclical downturns: that, and the failure of satellite ventures launched by IBM Corp., Federal Express and Rupert Murdoch, scared the bankers away-- and besides, interest rates were rising. Even Intelsat, with an impeccable credit rating, did not approach the money market until its first Eurobond issue of 1992
Recent history
The Wall Sb~eet effect
The last five years have been far more exciting. The cost of projects outgrew what even wealthy companies could fund internally, sending them back to the bank. More positively, deregulation and economic development opened new eldorados in Asia, while satellite television and mobile telephony became big business at last in Europe and the United States. A new crop of investors bought into satellites: often smaller, more entrepreneurial and visionary, better attuned to market trends, more familiar with commercial lending and generally short on cash flow. Interest rates were attractively low. Panamsat Corp. and Loral provided highprofile success stories for financiers to admire. Suddenly, bankers, stockbrokers, pension funds and even a few venture capital funds became big players in the satellite industry. The volume of public and private debt financing raised by satellite operators already reached $4.7 billion in 19!)6. In 1997, as Iridium Inc. and Globalstar raised most of their capital, it soared to $8.1 billion, about 6% of the total volume of private-sector lending to infrastructure projects. Companies venturing in the uncertain markets for mobile or multimedia services announced public offerings even before they had attracted equity partqers.
Moreover, 13 satellite operators and three multichannel satellite television companies successfully completed public offerings of stocks or bonds over 1993-97, rasing about $11 billion altogether. They made the satellite industry a known quantity on Wall Street, where major banks quickly hired satellite analysts and quickly overcame their wariness of exploding rockets and mysterious technology. By early 1997, the top 25 pension funds - among the major engines of U.S. and European stock markets - had invested nearly $1.:2 billion in satellite stocks and bonds, about enough to buy nine satellites. S!
~sion few rods :rs in the
So far, operators have moved cau-tiously on the public markets, raising relatively small amounts of: public equity compared to their private placements or bond issues. Their risk profile and short history usually earned them junk bond ratings, but most of these offerings were widely oversubscribed, and the industry now wants more. By early 1998, another 24 eompa-
AIR & SPACE EUROPE • VOL. I - No
I - 1999
~.E
C 0 .N..O.M.,CS............. ~......MARKETS =fferings by satellite operators ies, 1993-2001. (Doc. Euroconsult)
DESCRIPTION OF ISSUE
DATE Aug. 1993 Dec. 1993 1993 June 1994 Sept. 199__44 Dec. 1994 1994 Feb. 1995 June 1995 Aug. 1995 Aug. 1995 1995 Jan. 1996 Feb. 1996 Mar. 1996 June 1996 June 1996 June t996 Nov. 1996 Dec. 1996 1996 Feb. 1997 Mar. 1997 May 1997 June 1997 June 1997 )uly 1997 )uly 1997 Oct. t997 Oct. 1997 Oct. t997 Dec. 1997 Dec. 1997 Dec. 1997 1997 June 1998 July 1998 i~y @
1998 i998 -
$425.5 million bond offering $167 million share offering (35.8% of capital) $592.5 million $323.3 million bond offering $6.1 million stock offering (21.2% of capital} CD Radio Inc, (USA) $I,372 million stock offering (20010of cal~ital) British Sky Broadcasting plc (UK} $I 701.4 million Total $188 million stock offering (21.3% of capital) Globatstar L.P.(USA) $63 million stock offering (9.5% of capital) Echostar Corp. (USA) $275 million stock offering (19% of capital) Panamsat Corp. (USA] Orion Network Systems Inc. (USA) $56 million stock offering Total $582 million $210.1 million stock offering (9% of capital) United States Satellite Broadcasting inc. (USA) Iridium Inc. (USA) $238 million oona offering Globalstar L.P.(USA) $300 million oono offering Nilesat Satellite Co. (Egypt) $20 million stock offering (20% of capital] Asia Satellite Telecommunications Co. Ltd. (Hong Konq)......_$26_9miHio_nSTOCKoffering (27o/0of capital) PT Pasifik SatelJt Nusantara (Indonesial $73 million stock offering (14.7% of capital) $600 million oona offering Loral Space C-tCommunications CorD. (USA) APT Satellite Holdinas Ltd. (Hong K_ong) ......................... $147 million stock offering (25% of capital) Total $1,857.1 million $484 million bond offering Globalstar L.P.(USA) $710 million bond offering Orion Network Systems Inc.' (USA) $223 million stock offering Iridium World Communications Ltd. (USA) $325 million bond offering Globalstar L.P.(USA) $375 million bond offering EchoStar Communications Corp. (USA) $257.7 million bond offering Iridium Inc. (USA) $477.1 million bond offering Iridium Inc. (USA) $325 million bond offering Globalstar L.P.(USA) $300 million bond offering : Iridium Inc. (USA) $200 million stock offering ;;i EchoStarCommunications Corp. (USA) RT. Datakom AsW (Indonesia) $260 million bond offering Star Choice Communications Inc. (Canada] $150 million bond offering CDRadio., Inc. (USA) $175 million stock offering $4,261.8 million Total $540 million bond offering :: ~rai Space ~ Communications Ltd, (USA) $1,114 million stock offering des Satellites (Luxemburg) $I 20 million stock offering Lt& (UK} $570 million bond O~efing : iCOi i a i mun a ioosLtd.(UK) $2,344 million i $11,339 million Corp. (USA)
(1) Through Loral Space& CommunicationsCorp. (2) Financesthe Indostarsatellite system, formally operated by PTMedia Citra Indostar.
m
hies were planning (or said to be planning) 3ublic offerings, including some of the world's largest and most profitable operators, either to raise money or for valuation purposes (see table I]. In fact, it is worth noting tllat the industry's best-performing stocks of 1997 were those of development-stage companies, such as Iridium and Globalstar, which the market rewarded for meeting milestones while speculating on forecasts. Of the ten listed companies actually providing services, six lost value in 1997, some of them despite markedly improvinc their financiais; of: the four which gained value (including Loral Space ~t Communications Ltd., whose diverse activities make it les~ than a "pure play" operator), thre~ progressed more slowly than in 1996, and the year's real success story, Panamsat, gained much from a one-time event, its merger with Hughes. Debt and public equity, of course, are not patient money, and their greater use raises the stakes given the satellite industry's long history of missed deadlines and optimistic forecasts. Shareholder guarantees remain much appreciated; thus, Motorola guarantees $450 million of Iridium's debt. Perhaps uqsurprisingly given the scale of such investments, gathering equity takes years and structuring debt takes months. Faced with a plethora of satellite projects, re!tulators and potential investors and customers are tempted to put them on hold until they see serious financing on the line, creating a chicken-and-egg problem which can take a long tim~ to resolve. The availability of financing clearly remains a major barrier at the outset of most satellite projects. Wall Street analysts remain wary and nervous, castigating companies for falling behind their aast
projections even momentarily. Most recently, Panamsat's stock lost nearly 8 points in October 1998 after analysts misinterpreted the company's third-quarter results. Iridium's stock, after more than tripling in value in a year, lost about half its value over the Summer over reports of technical problems, in large part after mild criticism in a Merrill Lynch report (ominously captioned "reason for report: change of opinion.") As has been the case with satellite insurance in the past, a few high-profile failures may scare banks away. The commercial performance of mobile satellite operators Iridium, Globalstar and ICO Global, fraught with technical risk and to which banks are heavily exposed, will be watched especially closely in the next couple of years. The entire satellite industry will probably be punished if these companies fail.
saw their savings melt and inflation flare at a time when satellite television companies were already struggling with technical glitches and aggressive competition from cable, and generally revising their subscriber forecasts downward. Instability in Latin America and Russia compounds the industry's problems. The satellite industry is well placed to be hit by such upheavals. Satellite communications are part of the bricks-and-mortar of national development; some Asian satellite television projects, catering to tke supposedly affluent and rest-less middle classes of Jakarta and
)bile Iridium, Global, ical risk S are
ill be closely of years.
The Asia crisrs At the limit of the infrastructure and consumer markets, satellite operators were well placed to suffer from the'. Asian currency crisis as it unfolded in October 1997. Large devaluations hit southeast Asia just as operators in Thailand, Malaysia, Indonesia and Singapore were signing dollar-denominated leases to repay the debt carried by their new satellites; consumers in South Korea, Japan, Indonesia and Thailand - 1:o varying degrees -
Bangkok, may well fall in the same basket as the prestige investments in real estate and semiconductor foundries on which Asian elites spent so much without payin§ excessive attention to oversupply and competition. For better or worse, out of 75 geostationary communication satellites under construction at the end of August, 40% were intended for companies
Euroconsult 1998
~
AIR & SPACE EUROPE • V O L
I - No
I - 1999
ECO N O M ICS in "emergent markets" (i.e., not Western Europe, North America, Intelsat or Inmarsat.} Out of 160236 new satellites which Euroconsuit forecasts will be ordered through 2007, 53% will in principle serve such companies. So far, these tougher economic conditions have had relatively limited effects on the satellite market. Satellite operators raised only $5.7 billion in public or commercial debt or bonds in the first seven months of 1998, only 80/0 less than in the same period in 1997 (table II). SATIN, a satellite-related stock index published by Barclays Capital, lost 1.7% in the first nine months of 1998, even while the SUP 500 index {which tracks the New York Stock Exchange's largest stocks) still gained 4.8%. The summer's two satellite public offerings, by ICO Global and Societ6 Europ6enne des Satellites, proved small and unexciting. At least nine other public offerings, announced for 1998-99 by companies such as Malaysia's Binariang Sdn. Bhd., South Africa's Actel or Singapore-based AsiaPacific Mobile Telecommunications with a combined value on the order of $2 billion, have dropped from sight and may have to be replaced with private equity, loans, or plain patience. Even in southeast Asia, at the heart of the financial crisis, satellite operators have proven remarkably resilient. Thailand's Shinawatra Satellite plc, one of the worst-hit, got away with one quarter of losses. Transponder leases billed in dollars produced generous exchange gains. While over a dozen satellites failed to materialize after Asian operators
& MARKETS
had announced they would buy them in 1997-98, by the end of 1997 the Asian transponder market was showing signs of oversupply, making these projects likely to be deferred even in the best of times. Only two operators, in Thailand and Indonesia, both already having problems of their own, were pushed over the edge by the rising cost of credit and have had to suspend projects already under contract, causing 300 layoffs at Space Systems/Loral: not so bad compared with the massive bankruptcies which sweep the banking and automotive industries in Japan or South Korea. In the long run, the Asian financial crisis may well turn out of have a cleansing effect, weeding out visionary but shaky ventures, forcing greater deregulation in telecommunication markets, and prompting ope-
is have ~erience Justry take and before, .'state Europe mrly lOW even remit to )ased arket good Fen
rators to get help from strategic partners. Satellite projects may continue to pay at least indirectly for Asia's economic sins for some time, though no dramatic ripple effect is really in evidence. Banks welcomed a large bond offering in early 1998 by Mexico's Satelites M~xicanos, and the credit ratings of major operators like Panamsat and Iridium have been revised upward over 1996-97. However, lenders around the world have become wary of emergent markets and infrastructure in general; privatesector lending to infrastructure projects worldwide fell by 32010 over 1996-97, to $151.47 billion, according to a survey by Project Finonce magazine; and political instability remains as a complication in some key markets, notably India and Indonesia. technology or part of the world, without the security of shareholder guarantees, strategic partners, anchor tenants and transponder deals. The projects which will pass such tests will generally be good indeed. Over-cautious financiers may, of course, discourage inventiveness; but the satellite industry, febrile with V-band and mobile multimedia projects, has a long way to go before
conservatism becomes its major problem.
Authors contact information Stephane CHENARO, Euroconsult, 71, boulevardRichardLenoir,75011Paris Tel.: +33 [0}1 49 23 75 03 - Fax: +33 [0)1 43 38 12 40.
[email protected]
Im