ABS’ ABS-3A bird is set to launch in February, joining Eutelsat 115 West B as the first pair of all-electric spacecraft to enter orbit. SatelliteFinance’s Jason Rainbow talks to CEO Tom Choi about the satellite operator’s rapid growth and future…
ABS’ ABS-3A bird is set to launch in February, joining Eutelsat 115 West B as the first pair of all-electric spacecraft to enter orbit. SatelliteFinance’s Jason Rainbow talks to CEO Tom Choi about the satellite operator’s rapid growth and future expansion plans.
Jason Rainbow: ABS has grown rapidly since acquiring the Lockheed Martin Intersputnik-1 (renamed ABS-1) satellite in 2006. Lately the company has been ordering its satellites from scratch. Are you still looking at buying assets that are already in orbit?
Tom Choi: We are constantly looking for opportunities for the purchase of in-orbit assets. As you may know we recently acquired the MBSAT satellite which provides S & Ku-band capability from Toshiba and SK Telecom of Korea. This satellite is now positioned at 61E providing services to the Middle East.
JR: Are there many other in-orbit targets out there at the moment?
TC: There are some assets that are out there, but they’re not easily acquirable. The companies that have the most of them are the large operators, and they are using those satellites for their own purposes – not giving them out to emerging market operators like us to help our business expand.
I think they’re getting harder and harder to find.
JR: How much of your rapid growth is down to having a private equity owner and its financial support?
TC: The entire FSS industry grows at a paltry 3 to 4% per year. Our industry has the growth rate of public utilities. ABS on the other hand has been growing on average 30% on a compounded annual growth rate. This fiscal year we will grow more than 45%. Is the growth coming from the fact that we are supported by a private equity owner? Aside from SES, practically almost all the satellite operators are owned or controlled by private institutions, many of which are private equity-based, so that fact alone cannot substantiate nor explain our growth rate.
Needless to say our growth comes from a unique combination of skills, capabilities and financial support that we do receive from Permira. The top 10 executives of the executive team of ABS have more years of combined satellite industry experience than any other satellite operator in the world, including Intelsat. Although our company is young and our revenues relatively small, we are one of the most experienced operators in the world. We apply our knowledge and experience as well as our contacts in the user community to develop orbital slots, design satellites that meet the end user experience and acquire customers at a more rapid pace than any other satellite company out there.
JR: How is Permira’s ultimate exit from the company being managed? What effect would that have on your company strategy?
TC: Permira is the most experienced investor in our space. They owned and exited from both Inmarsat and Intelsat. They had the wisdom to not encumber our company with debt but supplied us with sufficient capital to finance ABS-2 and the two all-electric satellites from Boeing, ABS-3A and ABS-2A. They have managed and supported us extremely well and I could not be more pleased with the relationship we have with them.
My job as an entrepreneur is to make our investor as much money as possible and I believe me and the rest of the team have done a great job growing our business. In time, Permira will have to investigate the option of taking an exit from ABS and we believe, when that time comes, they will achieve a fabulous return. When they do that I will be extremely proud of what I would have accomplished. I believe that the next acquirer of ABS will be either a strategic or another institution who will be able to enjoy the growth that we have outlaid.
We have plans now to build potentially up to three more satellites (ABS-8, 9 and 10) in the next two years and we believe those satellites will double our valuation. Even with no more additional equity financing, ABS is on track to build one satellite per year from our own operating cashflow. There is no limit to how big ABS can become because we have already registered more than 10 expansion orbital slots and we can add more satellites to our existing locations. I strongly believe ABS will become one of the most dominant global satellite operators. The new buyer will enjoy that future so as long as they do not over burden the company with massive amounts of leverage.
JR: ABS did take out commercial debt in 2011 when it secured a US$215m loan from five banks. What does your debt profile look like now?
TC: That loan has already been repaid through a US$450m financing package from US Ex-Im Bank. We only have one source of financing, which uses the export credit agency as a senior secured lender.
JR: ABS now covers about 80% of the world with its satellites. Would you be interested in global coverage and would that come organically or through acquisitions?
TC: Our customers are demanding that we become global so we are currently looking to expand into an orbital position in the Western Hemisphere so that we will have global coverage. We will achieve that through organic growth rather than through acquisitions.
JR: ABS-3A will see your company provide complete coverage of all of Middle East and North Africa for the first time. How important do you see this region becoming for your business?
TC: This market remains one of the most heavily competed sectors in our industry. We have a very strong US government business as with the other operators but we want to see a video business developing on our satellites at 75E and 3W over the MENA region. We will soon launch a DTH service for the GCC region with our customers and we hope that we can build a FTA video business at 3W. You saw we recently announced a major partnership with Arabsat for our capacity on ABS-3A.
JR: High throughput service payloads are becoming increasingly prevalent in Asia and beyond. What is your view on the technology and the opportunities it provides satellite operators?
TC: One of the major stumbling blocks for the growth of our industry has been that of high capacity prices. HTS satellites reduce the prices of the bandwidth but introduces rain fade reducing service quality. To provide customers with both low bandwidth prices and high service quality, we have designed and patented a very unique satellite and ground system architecture that makes HTS satellites ‘rain proof’.
Our Ultra Throughput Satellites (UTS) will provide a combination of spot beams in high frequency and wide beams in low frequency, which allows ground terminals that are capable of receiving multiple frequencies simultaneously and load balancing between high and low bands during heavy rain attenuation. I am the inventor of this patent which received its global protection in 2012. We have this system on trial today and our customers are extremely interested in this technology and they are signing up as anchor customers for our UTS satellites, ABS-8, 9 and 10. All our future satellites will have this UTS payload and we are incredibly excited about our future.
JR: What challenges lie in the way of ABS’ expansion plans?
TC: ABS has greatly expanded our EXCO team this past year. We added Mohamed Yousiff as our COO and MD for the Middle East. Last month we announced the addition of Dolores Martos to be our MD for the Americas. She was previously the head of Latin America for SES. We just hired Flavien Bachabi who used to run Africa for Intelsat. With these incredible additions to our team, I believe we won’t have sufficient capacity to meet the requirements of the customers who want to work with our senior management team.
We have tremendous support of US Ex-Im Bank who are providing low cost loans for our satellites. As I told you earlier we have sufficient slots for our expansion. Thus our expansion will not be limited by customers, financing or regulatory constraints. However, we had a major failure on our new satellite ABS-2 where many of the transponders were rendered inoperable and the performance of the beam has degraded beneath the specifications. The entire beam will be replaced by ABS-2A. Our growth plans will be constrained if we keep having technical problems like this in the future.
JR: ABS tapped Boeing for a second all-electric earlier this year, and it had an option to buy further satellites from the manufacturer under the deal. Have you decided to use that option?
TC: This option has already lapsed but Boeing has been supportive with us on giving us an extension. We are in serious discussions with them regarding ABS-8.
JR: Apart from Satmex, has your company been in talks with other potential rideshare partners for pairing up these all-electrics?
TC: Boeing has multiple customers who desire to be co-launch partners on all-electric satellites. We plan to make ABS-8 a lower position design so that we can accommodate other co-launch passengers.
JR: How much headroom is there in your US Ex-Im Bank loan for ABS-3A’a upcoming launch? Are there any particular covenants tied to the timing of the launch, or your EBITDA profile that pose a risk?
TC: We don’t have any headroom issues with Ex-Im. We don’t have a covenant issue because all the satellites are being built on time and are scheduled to launch on time.
JR: ABS-2 recently saw a US$214m insurance claim for the failure of a single beam. Why was this so large for a partial failure?
TC: Our insurance claim is below US$80m. The rest of it comes from our customer GT Satellite Systems who is on the Russia beam. They insured both the asset and revenue.
JR: What impact will the failure of ABS-2’s Russian beam have on your company’s expansion plans?
TC: The failure of the Russia beam has had a negative US$20m+ impact for this fiscal year but we have sold out the Russia Beam of ABS-2A, which more than doubles the capacity at 75E over the Russian territory.
JR: ABS’ rapid growth will likely draw the interests of larger players looking to buy Asian assets, as well as smaller ones seeking a quick way to gain scale. Has your company already been approached? How would you manage that process?
TC: Given our prospects, it is not surprising that multiple parties are interested in acquiring us. We have had to turn away multiple parties. If anyone is interested, they should be contacting Permira.
