Kacific orders US$147m high-speed broadband satellite from Boeing

Singapore startup Kacific has ordered its first satellite to deploy high-speed broadband across South East Asia and the Pacific after raising US$147m through a mix of equity, debt and customer prepayments. US manufacturer Boeing aims to have the satellite ready to launch in 2019 on a rocket to be picked in cooperation with Japan’s Sky Perfect JSAT , which is sharing the condosat with a separate Ka and Ku-band payload that it calls JCSAT-18.

Singapore startup Kacific has ordered its first satellite to deploy high-speed broadband across South East Asia and the Pacific after raising US$147m through a mix of equity, debt and customer prepayments.

US manufacturing giant Boeing (NYSE:BA) aims to have the satellite ready to launch in 2019 on a rocket to be picked in cooperation with Japan’s Sky Perfect JSAT (TYO:9984), which is sharing the condosat with a separate Ka and Ku-band payload that it calls JCSAT-18.

Kacific CEO Christian Patouraux said 51 of the 57 Ka-band narrow beams on what it has named Kacific-1 have already found customers through take-or-pay contracts, with most beams exceeding 70% firm capacity bookings.

Its US$434m worth of managed bandwidth wholesale deals in 14 different countries helped it secure financing for the project despite being unable get the support of US Ex-Im Bank, which has been locked out of signing off large loans for nearly two years.

Patouraux said it had considered a range of options for Kacific-1 in addition to Ex-Im with debt adviser Portland Advisers , including French ECA Coface at one point. Société Générale has been advising the venture on the equity side, with most of its equity now coming from either Europe or Australia.

Last year the company raised about US$22.3m in a series A round, comprising US$20m from a UK-based family office focusing on infrastructure investments and US$2.3m from two private Australian investors. New Zealand’s Caniwi Capital arranged the placement, while the company has also been working with Australian broker Lennox Capital.

“We've got a lot of interest from Australia mainly because they're close to the market, and understand the dilemma that it is facing with a lack of connectivity,” Patouraux said.

Kacific has already been providing commercial services by leasing a patchwork of Ku-band bandwidth from satellite operators. Patouraux said it could continue to offer these frequencies as it transitions to its 100 Mbps Ka service.

For Sky Perfect JSAT, which has yet to use ECA debt to back a satellite, JCSAT-18 is the second HTS bird it has under construction. Boeing is also building Horizons 3e , which Sky Perfect JSAT will share with fleet operator Intelsat (NYSE:I).

JCSAT-18 will provide HTS services across Asia Pacific, including Far East Russia, and will also have a traditional wide-beam mission over East Asia to meet mobility and broadband demand, as well as the need it sees for more government and cellular backhaul services.

The Japanese company has ordered several satellites for the region in recent years, tapping SSL and Lockheed Martin (NYSE:LMT) in the US, and local satellite maker Mitsubishi Electric (TYO:6503).

Boeing has built 10 satellites for JSAT Corporation and Space Communications Corporation, both now part of SKY Perfect JSAT, since the 1980s.

Boeing shares spike

Boeing’s stock soared to a 52-week high (US$173.25) as US President Donald Trump suggested that a larger purchase of its F/A-18 Super Hornet jet fighter might be possible, while signalling a possible U-turn regarding Ex-Im.

During his primary campaign, Trump criticised the bank, which needs another director to make up a quorum on its board so it can sign off deals worth more than US$10m. However, on 9 February Democratic Senator Heidi Heitkamp said Trump told her that he would make a nomination.

He was silent about Ex-Im during a speech at the Boeing plant on 17 February, however, and the ECA has also appeared on the list of domestic programmes that the White House budget office could cut. A more detailed budget is expected in the coming weeks followed by what is expected to be a bruising budget battle in Congress. The bank’s charter first lapsed in July 2015 and since then aerospace companies and others have been lobbying hard to restore Ex-Im to its former state.

As executives sort through the nettle of business and politics, Boeing has offered US$900m of unsecured senior notes in three tranches. In May 2016, Boeing netted US$1.17bn from the sale of fixed-rate unsecured senior notes, also in three tranches, due between June 2023 and June 2046.

The first tranche of the new bond sale, which is due 1 March 2022, has a 2.125% coupon and a yield of 2.381%; the second tranche, due 1 March 2027, has a 2.8% coupon and a yield of 3.068%; and the third tranche, due 1 March 2047, has a 3.65% coupon and a yield of 3.912%.

A spokesperson for the aerospace giant said the organisation would use the proceeds for general corporate purposes, declining further comment.

Citigroup Global Markets is a joint book-running manager for each tranche. For the first tranche, the other joint book-running managers comprise Deutsche Bank, SMBC Nikko, Credit Agricole, Santander and US Bancorp Investments ; for the second tranche Goldman, Sachs, Mizuho, BNP Paribas, BofA Merrill Lynch, and RBC Capital Markets ; and for the third tranche JP Morgan, Wells Fargo, Barclays, Morgan Stanley and MUFG .

More debt funding expected

Moody’s assigned an investment-grade A2 rating to Boeing’s notes, due to the company’s operating performance and risk mitigation related to continuing development and transitional programs and rising narrow-body airplane production rates.

“The ratings broadly reflect Boeing’s position as a leading global manufacturer of large commercial airplanes and a prime US defence contractor, with a sizeable order book underpinning excellent long-term revenue visibility and strong liquidity provisions mitigating a temporarily leveraged balance sheet,” Moody’s said.

“We expect Boeing to generate US$5.5bn or more of free cash flow after dividends in each of 2017 and 2018.”

“Boeing’s core margins and earnings should benefit from coming supply-chain cost reductions and further productivity improvements,” Moody’s said, while also noting “a spate of multi-billion-dollar charges” in recent years in conjunction with a US$20bn pension deficit.

“Even so, Boeing’s ‘aggressive’ shareholder return initiatives would likely entail another year or more of cash depletion and/or incremental debt funding—a component of which is presumably captured in the current debt financing,” the agency said.

Boeing’s cash (US$8.8bn) at the end of 2016 declined 22% compared with that at the end of the previous year (US$11.3bn) and almost 25% versus that at the end of 2014 (US$11.73bn), yet it has ample resources to cover cash-flow requirements.

The company has US$5bn of unused borrowing capacity on revolving credit facility, of which US$2.48bn is a 364-day revolver expiring in November.

In 2016, Boeing netted US$4.90bn on US$94.57bn in revenue. This compares to US$5.18bn and US$96.11bn, respectively, in 2015.

CEO Dennis Muilenburg said: “We led the industry in commercial airplane deliveries for the fifth consecutive year, achieved healthy sales in our defence, space and services segments, and produced record operating cash flow, which fuelled investment in innovation and our people and generated significant returns to shareholders.”

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