The European Bank for Reconstruction and Development (EBRD) has been steadily expanding its scope since it was set up in 1991 to initially focus on the countries of the former Eastern Bloc. In August the Bank revealed it was considering helping Bulgarian…
The European Bank for Reconstruction and Development (EBRD) has been steadily expanding its scope since it was set up in 1991 to initially focus on the countries of the former Eastern Bloc. In August the Bank revealed it was considering helping Bulgarian satellite TV broadcaster Bulsatcom raise €85m in debt to upgrade its terrestrial infrastructure. SatelliteFinance’s Jason Rainbow caught up with Izzet Guney, EBRD’s director for ICT, to find out what opportunities it could offer other satellite companies.
Jason Rainbow: Are you currently evaluating any other projects that are similar to Bulsat?
Izzet Guney: If you’re talking specifically about the satellite angle and nothing else, this is probably the first transaction where we have had some type of involvement. The transaction itself is for an entity which is providing broadband internet. It is not the entity that is the owner of the satellite company. It happens to be that the owners of the satellite company also happen to be the owners of this broadband internet company.
It also happens to be that, to provide a more advanced direct-to-home service, and at the moment they are using a Greek satellite, that they have decided it makes sense to procure transponders from another satellite.
If you look over the 20+ years at how active the Bank has been within the satellite industry then you will really not find us that active at all. I think we’ve done a Sea Launch project, which was a guaranteed facility many years ago. And that’s about it.
We don’t look at this recent transaction as a satellite financing. We look at it as a broadband/DTH-type of provider for Bulgaria. But you’re right to say there’s an ancillary impact, which is the fact that there will be some funding going one way or another into providing what is necessary for a new satellite to also be launched in the next year and a half to two years.
JR: I know helping Europe upgrade its broadband infrastructure through LTE and fibre upgrades and so on is a big part of EBRD’s mandate. But would it be possible to give similar support to satellite broadband, or does that not come under your investment criteria?
IG: For us, well for me specifically as head of this team, we look at broadband in general. The delivery mechanism is generic as far as we’re concerned. It could be old fashioned cable – many years ago it was Coax and today it is fibre – but it could be wireless as well, and we’ve done a lot of wireless broadband transactions.
It could also be satellite. To tell you the truth, as to why you haven’t seen us providing financing for satellite broadband, an easy answer would be the fact that it is still quite expensive, in terms of how much the end user has to pay for it. Also in very dense areas, such as Europe, the ability for a satellite broadband operator to compete against the wired or wireless broadband providers is extremely hard for pure financial reasons. Usually it turns into a more ancillary business, maybe in very remote areas, etc. So yes maybe satellite broadband in larger areas where the population is very sparse would make sense, but I think everybody is waiting for the price point to get to a level where it is actually competitive for companies to provide that service, and compete on a fairer basis against technology which today, be it Wi-Max or LTE, is more economical.
In general for Europe, you’re not going to find too many operators which are operating in that segment, and within that segment solely and only selling that type of service.
JR: If the EBRD was to get involved would the project have to be focused on Europe, and benefit European citizens? Or, for instance, could a European satellite provider tap the Bank to expand in Africa?
IG: We have a very specific geographical restriction, which is basically our capital one way or another has to end up in our countries of operations. Hence, our map which is central eastern and southern Europe and CIS, and then we’ve added some countries over the past few years: Turkey, Mongolia, Tunisia, Morocco, Egypt, Jordan and very recently Cyprus. EBRD has to make sure that the capital of the Bank – which could be anything on the balance sheet, so from debt to mezzanine to equity – has to end up somehow in our territory. And that also makes it hard for a satellite company, unless you can prove that your footprint, per se, is our territory and our territory only. If someone comes and says my satellite will cover Europe and all of Africa and even all of Asia, etc, then that will create complications on our side.
JR: And when you say the capital has to get back into the territories you cover, do you mean to the companies that are based there or the end users?
IG: The two are connected. Ultimately the Bank’s existence is dedicated to providing a competitive landscape that ultimately benefits the subscribers.
In this case for example, we want to make sure that Bulgarian subscribers to DTH and broadband, etc, benefit from our ability to provide the client funding that is necessary for it to run the business.
If a client is based in an offshore location, we have to ensure that 100% of that facility ends up one way or another in our countries of operations. But ultimately, the reason why we are here is to make sure that the consumer in our countries will benefit. We’re not going to put money into an operation where the client could be in our countries of operations but they’re selling services in Singapore.
JR: It is interesting to hear you talk about EBRD expanding its geographical remit. Is this a recent phenomenon and are there talks to expand further?
IG: It is recent, over the past two or three years. If you look at the ownership of the Bank you will notice that it is European indeed but we do have other G7 countries in there – the US, Japan, etc. And there were decisions made specifically after the Arab Spring that an institution like ours, given our 20+ years of experience, could assist in economies going from the old soviet model of a centrally-planned economy to a market-led economy, and use the experience we have in dealing with SMEs, the private sector, etc. Cyprus is a case where, on a temporary basis, we will be acting over the next five-six years and that was a reaction, again led by G7, which looked at us for our expertise on handling issues such as privatisations, helping an economy rebound, etc.
So you see us be very active in those instances where we are seen as having an expertise that comes handy in dealing with specific economic cases.
JR: Are there talks to go further at the moment?
IG: I do not know of any other instances. We are obviously extremely focused on the countries that are our ‘historical countries’. We still have a lot of business and a portfolio there. The new countries are where we are now doubling our efforts to ensure people know who we are, how we operate and how we can help.
As for whether and when others will join our countries of operations, I’m pretty sure it will happen, but this is something that our senior executives, shareholders, etc, are in charge of doing.
JR: EBRD works a lot with commercial banks, but does it also collaborate and partner up with export credit agencies?
IG: Yes, in my sector when we were working on 2G and 3G projects across Europe for instance, people trying to put the business plan together would always have vendors who would have a package which would include an export credit agency. But we have not been as active with ECAs over the past few years because fewer GSM licences have been issued, but if you looked at us in the 90s and early 2000s, that’s when we did a lot of work with them.
So in this Bulsat case, Ex-Im bank of the US is involved, on the satellite side. Are we working directly with them? No, but we’re obviously liaising with them just because in the overall big picture they are one of the players who are needed for this enormous puzzle to come together, along with commercial banks, etc, to make sure that this entire operation is a successful one.
JR: In terms of how EBRD operates, do you go out to make pitches to companies or do you wait for them to come to you with their projects?
IG: We have different ways of working. We do our own marketing by approaching existing and new clients, and we get a lot of referrals from commercial banks, advisers and consultants. Our marketing tools are quite vast, so you see us being very active but at the same time people do understand that the Bank is not there to grab out the private/commercial market. That’s one of our tenants where we have to prove to our management and our board that the bank is indeed additional in any project we talk about. That is extremely critical for us. I used to call it the ‘holy trinity’, we have to prove that there is a transition impact that is provided through our financing, that the bank is additional, and that at the end of the day the project itself did actually provide a positive net income to the Bank.
That holy trinity is something which is at the core of our bank. So you don’t see us compete with commercial banks, but you will see us wait maybe one step behind to make sure that we are indeed needed.
Usually the way it goes is the client talks to their advisers, consultants and the commercial sector, etc, and they realise that there’s something that’s missing. It could be political risk, it could be pure financial risk where people are not willing to give the long maturity that is being looked for or they’re not willing to provide them the equity risk, that’s when we will get approached.
In Bulsat’s case, we had been talking to them for a while, but we knew that there were attempts at growing the company, which is something at the core of what the bank is trying to do. In this case it was quite evident that what was needed in terms of financing was something that required our presence and that’s how we were able to put the package together.
JR: How do you see demand for your services playing out now that the economic crisis brought on by the fall of Lehman Brothers has eased across Europe? Do you see EBRD scaling down?
IG: The Bank itself has been in operation for 20+ years to provide financing one way or another to its client base – crisis or no crisis. At times, when there are financial difficulties and people are having a harder time, when commercial banks decide to remove themselves from a specific country for whatever reason, then we will look at those situations and try to see if we can still help and still be counted on for the client. We’re very proud of the fact that you see us everywhere as a true long term player. At the end of the day, you will see us being more active, just because as a development bank you have to be able to assume probably more risk than a pure commercial bank. It is our mandate to be there and help.
But it’s not going to be financing at all costs. We’re a very prudent bank at the same time.
JR: It will be interesting to see whether EBRD becomes more involved in satellite broadband as pricing points come down and perhaps more business cases materialise. Apart from satellite broadband though, are there any other types of satellite projects which could fall under EBRD’s investment criteria? Such as Earth observation for disaster relief, remote sensors that support agriculture and so on?
IG: Yes but you have to look at who the ultimate client would be for this. For the larger players like Intelsat and Eutelsat you do have a specific geographical issue. So if you look at who is providing the satellite, and forget about where the launch will be, whether it is LEO or GEO, etc, at the end of the day our universe of clients with whom we can work with is very small because of this geographical issue. So that is probably one of the main reasons why you have not seen us as active as, for example, the World Bank would have been just because their remit in terms of geography is much larger than ours.
Is that going to change? Well, taking the example that we’re citing here in terms of Bulgaria, I don’t think that will be the rule rather than the exception. I think this is a one off. It was a very exceptional case because of the presence of certain players within the puzzle, which made it so that we actually saw a fit. Again, this is not satellite financing, but there is an ancillary piece that is satellite-related. But I don’t see this model being replicated as much.
If you look at all the other countries in our region, you don’t have that many of them or, even though they might have an orbital slot, if you look at who is actually using them you see a bunch have already been sold to other foreign entities.
Can we look at satellite projects besides broadband? Yes, but again we would look at the geography, the transition aspect, the additionally aspect, and also whether this is a project that is a profitable one.
