Nascent satellite telecommunications infrastructure provider O3b Networks has finalised its US$1.2bn funding, which will allow it to launch eight satellites in the first half of 2013. The financing is split between US$770m worth of debt and US$410m in…
Nascent satellite telecommunications infrastructure provider O3b Networks has finalised its US$1.2bn funding, which will allow it to launch eight satellites in the first half of 2013.
The financing is split between US$770m worth of debt and US$410m in equity.
The debt includes a 95% Coface-backed senior debt facility of US$510m provided by HSBC, ING, CA-CIB and Dexia; a US$115m senior debt facility and a US$145m mezzanine facility from HSBC Principal Investments and the development banks DBSA (Development Bank of South Africa), EAIF (The Emerging Africa Infrastructure Fund), AFDB (African Development Bank), DEG (Deutsche Investitions unt Entwicklungs Gesellschaft), Proparco (Promotion et Participation pour la Coopération économique), FMO (a Dutch development bank) and IFC (the World Bank’s International Finance Corporation).
The equity, worth US$410m in total and including US$230m in new investment, was provided by the company’s existing shareholders – led by SES, HSBC, Liberty Global, and including Google, North Bridge Venture Partners and Allen & Company – but also by new investors including DBSA, Belgian investment company Sofina and African investment firm Satya Capital.
The debt portion
SatelliteFinance understands that the Coface-backed facility has a tenor of approximately ten and a half years and pays a margin comparable to the Coface-backed loans secured by Iridium, just under 5%, and Globalstar, around 6%. The loan is to be repaid in fourteen instalments spanning a six and a half year period. The start of the repayment period will depend on when O3b begins commercial operations and is also linked to the draw down of the facility.
As with other ECA backed deals, the Coface agent will directly receive proceeds from the debt and will then pay this to either the O3b satellite manufacturer, Thales Alenia Space, or launch provider, Arianespace, depending on the payment schedules in their respective contracts.
While there are currently four banks underwriting the loan, it is highly possible that these banks may seek to reduce their exposure and increase the syndicate of lenders. O3b is also thought to be interested in expanding its group of relationship banks.
The commercial debt facility takes the form of a senior term loan and has a similar maturity to the Coface-backed debt. Terms are also understood to be very similar although have been adjusted according to the different requirements of the development banks. Pricing on the debt is higher, however, with one source suggesting that it was what would be expected for a typical project finance loan in a new business and as such will be over 10%.
As for the mezzanine facility, it is believed to be a straight forward structurally subordinated tranche of debt, although each bank had the option to select how much is a bullet loan and how much is amortising. Indeed, under the terms of the mezz, the debt can be serviced if O3b has the cash available or can be rolled up as a PIK.
One source close to the deal said that O3b had been exploring the possibility of having a mezzanine tranche around a year ago as it was seen as more favourable than increasing the equity portion to raise the necessary financing. It then became increasingly clear that there was sufficient appetite from the development banks to staple the subordinated debt to the senior term loan.
The source added that while this blended facility hit a couple of hurdles connected to the exchange rate instability between the Euro, which is the currency Thales is being paid in, and the Dollar, the financing currency, over the past six months, the banks were generally comfortable with deal.
Given the relative lack of appetite from commercial banks for the senior debt and mezzanine facilities, attracting a large enough lending group from the development banks was vital and the African development banks DBSA and EAIF were particularly instrumental in helping to achieve this.
The equity portion
On the equity side, O3b is believed to have been targeting new investors for the past 18 months, particularly in the African development space.
One of the first parties on board in this was DBSA, which had approvals in place to invest at the beginning of this year and was again a vital cog in helping to bring in other new investors.
These new investors will though remain minority shareholders with SES to remain company’s largest shareholder. The satellite operator is expected to provide US$75m in new equity investment with its shareholding in O3b reaching 34%. Within the next two years, SES’ shareholding will then potentially increase to around 44%, as the company will take on some more operational responsibilities in the form of in-kind services. Mark Rigolle, the CEO of O3b, told SatelliteFinance that these services included O3b’s regulatory affair as well as utilising SES’ commercial and engineering expertise. As a result of this increased interest in the company, the other investors’ shareholdings will be diluted, it was confirmed.
Prior to his appointment at O3b, Rigolle was CFO of SES, which also donated Jonas Mattsson, former CFO of its New Skies division, to be O3b’s new CFO. These appointments, combined with the minority stake in O3b, allow SES to minimise the risk while maintaining a firm grip on the direction the company will take.
“This investment perfectly complements our strategy to increase SES’ presence in developing countries, and to ensure satellite’s prominent role in their future,” said Romain Bausch, President and CEO of SES, in a statement.
Out of Africa
Rigolle explained that the satellites will target Africa but also South America, the Middle East and South-East Asia. “There is a clear opportunity in Africa but this is not the only market we focus on.”
O3b had so far a relatively small sales team of about ten people, which is one reason why the company maintained such a strong focus on Africa, which has been its most prominent market to date.
With access to the much larger and well-developed SES sales infrastructure, O3b is now in a position to capture more business in other areas of its worldwide coverage band according to Rigolle. The CEO added that he expects O3b’s annualised revenue to be around US$250m by 2013.
As to whether the company would need to raise further funding in the future, Rigolle said that it was not on the agenda for the moment and that it would only happen in case O3b needs to expand more rapidly in the years to come or decides to add new satellites to its constellation.
The initial eight Ka-band birds are being built by French constructor Thales Alenia Space and will be launched into a medium earth orbit by Arianespace with a Soyuz launcher form the first half of 2013. ViaSat will provide the teleport and trunking product customer terminals.
O3b had originally planned to launch services in early 2012 and some of the early contracts that it signed specified a service date for the beginning of that year. However, the company is understood to be in discussions with its customers to make the necessary contractual adjustments and it is confident that this issue will be easily resolved.
Portland Advisers and HSBC advised O3b on the debt side of the financing with UBS advising it on the equity portion. Milbank Tweed Hadley McCloy was legal counsel to the company with Allen & Overy counsel to the lenders. Marsh is O3b’s insurance broker, with Jardine Lloyd Thompson the insurance adviser to the lenders. Mott MacDonald was the company’s technical adviser on the deal.
