O3b lays out financing strategy

The satellite telecommunications infrastructure provider O3b is approaching a new phase in the financing for its global constellation of 20 medium earth orbit Ka-band satellites. In an interview with SatelliteFinance, new O3b CEO Mark Rigolle explained…

The satellite telecommunications infrastructure provider O3b is approaching a new phase in the financing for its global constellation of 20 medium earth orbit Ka-band satellites.

In an interview with SatelliteFinance, new O3b CEO Mark Rigolle explained the initial layout of the US$525m debt financing that is being backed by a US$465m guarantee from the French export credit agency COFACE.

“The O3b financing consists of the major block backed by COFACE and a commercial mezzanine tranche” said Rigolle.

The US$465m COFACE-backed section of the debt will be taken out with “mostly French banks, but not exclusively.” Most of the banks have gotten through the business review stage of the process, and one French bank has approved credit for the transaction.

Rigolle said that three more banks in the consortium are on the verge of getting credit in the next week. He has recent experience working with COFACE, as he was SES CFO when the operator arranged its own E523m financing via COFACE backing during the winter.

The financing was completed just prior to his move to O3b, which had obtained its COFACE guarantee prior to SES but which, due to its less established status, is taking longer in arranging its facility.

“The COFACE funding process takes a certain amount of time to get closed,” said Rigolle. “Even for SES, it took a lot longer than other types of funding. Take the time it took a company like SES and double it, which gives a transaction time of 6 months, and puts us on course to complete financing by the summer.”

Under the rules of the Organisation for Economic Co-Operation and Development (OECD), export credit agencies cannot provide the entirety of backing for project financing, as there is a necessity for banks to retain some exposure.

This is why the remainder of the O3b financing will be arranged through a mezzanine structure that O3b is drawing up with a group of developmental organisations. Rigolle cited the likes of the African Development Bank as an example of the kind of organisation in question, without confirming that it specifically is involved in the O3b financing.

“They like the development aspect of what we’re going to do,” he said. O3b’s mission statement to bring broadband connectivity to “the other 3 billion” people in developing nations is a clear fit with these organisations’ priorities.

Rigolle said that a summer timeframe for this section of the financing was “feasible”, which means that it will be completed at a similar time as the larger section.

Along with the debt financing, O3b is also heavily engaged in raising US$200m equity funding. According to Rigolle, the SES investment in O3b, coinciding with the slight recovery in the financial markets, has greatly boosted interest in the company among large-scale financial investors.

Strategic and infrastructure players have also sat up in attention. “There are sources of capital available that no-one at O3b would have thought possible to access six months ago,” said Rigolle.

The timeframe for the equity financing is a little more fluid than for the debt, but Rigolle said that ideally O3b would be able to announce substantial equity investment prior to the completion of the debt facilities in the summer.

Along with increased investor credibility, another unheralded benefit bought by SES’ involvement is access to a much larger sales force.

O3b currently has a relatively small sales team of about ten people, which is one reason why the company has 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.

Another factor that will organically fuel uptake in regions other than Africa is that of capacity. O3b currently has a backlog of US$500m. Given that, according to Rigolle, annualised revenue is expected to be US$250m, this means that the first eight satellites that are to be launched in 2012 will fill up quickly.

O3b will then launch incremental satellite batches until the constellation reaches its full size of 20 spacecraft by 2015.

Its ground equipment needs will be fulfilled through a contract it signed this month with ViaSat for the production and installation of Ka-band infrastructure. Under the terms of the agreement, ViaSat will supply gateway teleports and high-speed IP trunking terminals, including full-motion tracking antenna systems for the MEO satellites, to O3b for approximately US$47m. Teleport installation is scheduled to be completed ahead of the planned launch of the O3b service.

Along with Rigolle, SES has also donated Jonas Mattsson, former CFO of its New Skies division, to be O3b’s new CFO.

When asked why SES is diverting some of its most senior personnel to oversee a company in which it holds a 30% stake and a US$75m investment, neither of which are particularly sizeable for a group of its size, Rigolle said: “It could be interpreted as an expansion of support for O3b. At this point in time a strategic minority investment makes more sense to SES for financial reasons.”

“One of the reasons it’s good for me to be in this company is that I have done an IPO in the past,” he continued. “That’s one possible exit opportunity for investors after four or five years if the project goes as well as we think it will. Another would be to sell to a large buyer in bandwidth space. Of course, SES itself is also a natural fit to acquire O3b outright.”

In this context, SES minimises the risk while maintaining a firm grip on the direction O3b will take.