A General Meeting of the board of Avanti Communications has approved the company’s financing plans for a second satellite, HYLAS 2. The plans comprise an £89m share placement, a US$220m debt facility provided by the US export credit agency ExIm, and a…
A General Meeting of the board of Avanti Communications has approved the company’s financing plans for a second satellite, HYLAS 2. The plans comprise an £89m share placement, a US$220m debt facility provided by the US export credit agency ExIm, and a third debt facility that is currently being drawn up which is backed by a US$101m guarantee from the French export credit agency COFACE.
Avanti CEO David Williams told SatelliteFinance how its relationships with the satellite’s manufacturer Orbital Sciences and launcher Arianespace opened up the opportunity for such sustained export credit support.
“We had attempted to raise equity financing for Hylas 2 in October 2008,” he said. “Unfortunately we were on our roadshow to attract investment when Lehman Brothers went bust.”
“We had put a tender out in September 2008 and received bids from five manufacturers. Orbital were selected based on the schedule and price they offered, and their long and distinguished heritage as regards satellites of this size in particular.”
“I was then put in the position of having to tell them we couldn’t raise the financing for the project. Then, in January 2009, Orbital came back to us and told us that ExIm would be willing to get involved and provide financial support.”
Avanti developed its relationship with Arianespace last year, after it made the decision to switch the launch of the HYLAS 1 satellite from SpaceX’s Falcon 9 to the Ariane 5 rocket. HYLAS 1 is due to be launched in mid-2010.
Williams said: “When it became apparent that ExIm was willing to provide financing for HYLAS 2, we and Arianespace decided that it made sense to apply for COFACE backing as well.”
Avanti’s share placement has increased the companies total share capital by 32%, not the 48% that was previously reported. It received strong support from investors. Williams said: “All our principal institutions supported the transaction and bought more shares, but given the scale of the funding it was important to bring in new investors as well, which we did.”
“About 80% of placement was funded by institutions already on the register, but some of them had only previously made very small commitments, and have now gone up to full unit size.”
The cost of the HYLAS 2 project is low, considering that the satellite is offering more than double the amount of Ka-band capacity of HYLAS 1, and will be widening its coverage into Eastern Europe, the Middle East, and Africa.
Williams explained why the price is relatively lower. “We have wider coverage and less flexibility on HYLAS 2 – there are some components that were on HYLAS 1 that just aren’t on the new satellite,” he said. “It’s a simpler design, quicker to produce and requires no R&D, because that took place for HYLAS 1.”
One of the reasons the HYLAS 1 payload is so complex is that when it was first proposed to the financial community in 2005 there was not a strong backing for Ka-band satellite broadband in the financial community, and the satellite payload had be extremely flexible to ensure that it could have potential resale value in case the business plan did not work out.
While HYLAS 2 is a larger spacecraft than its predecessor, Williams does believe there are limits to economies of scale in the satellite broadband market. He said: “I don’t believe very large Ka-band satellites are a good idea. Unlike a large TV-oriented satellite, where you can fill it up one or two big deals, with Ka-band it is a case of selling capacity subscriber by subscriber. It takes a longer time to fill it up. What we have announced with HYLAS 2 is a medium sized satellite, and I am confident we can fill it within three years of launch. This should give us time to procure another satellite to be available more or less at the point when HYLAS 2 is full.”
The rise in investor interest is further vindication for Avanti’s commitment to Ka band-based satellite broadband services. Given the growth in the sector, Williams believes that the argument in favour of the technology has been won, and that its potential has only begun to be tapped.
This is due to the extreme growth in consumption of online video, be it through simple video applications on websites, social networking and low-resolution sharing sites like Youtube, or high-quality programming services such as Hulu or the BBC iPlayer.
He said: “As data consumption rises, ADSL and wireless networks will increasingly struggle to deliver fast video services to customers at the edges of their coverage, so paradoxically, the gap between the centre and the fringe is widening despite the speed of development in this area. The rollout of terrestrial broadband has given rise to our opportunity, so I think Ka-band will be much bigger than just serving remote areas. There’s room in the market over the next fifteen years for several hundred Ka-band satellites.”
