Intelsat CEO Credits Creative Funding Plan for New Africa Satellite

[Satellite News 12-09-08] Intelsat has formed a joint venture with a South African investor group to finance a satellite to serve the growing communications market in Africa.
    The joint venture, Intelsat New Dawn, was created along with Convergence Partners and will finance the $250 million project in a manner that has never been seen in South Africa, Intelsat CEO Dave McGlade told Satellite News. “I think it is impressive that we got this deal done in an incredibly difficult global economic environment,” he said.
    About 15 percent of the financing for the satellite will come from equity, with Intelsat’s stake amounting to about $25 million. The Convergence Partners-led group, which also includes Altirah Telecoms, a joint venture between private equity and hedge fund firm, Altirah Capital and the Oppenheimer Family Fund, will contribute the remainder of the equity stake.
    The rest of the satellite funding, about 85 percent of the total, will come from debt in the form of non-recourse project financing provided by African institutions. Nedbank Capital, part of the Nedbank Group (one of South Africa’s largest banking groups) and a telecom project financier in South Africa, arranged the debt financing. Nedbank and the Industrial Development Corp. of South Africa, a self-financing national development finance institution, are the largest participants in the debt funding consortium.
    “This type of project financing has never been done before,” said McGlade. “The way we brought in a local partner like this while using South African banks is an absolute first. Convergence Partners is a good partner and we have been talking to them and planning this deal for two years. They have a lot of connections in the marketplace. I think it’s always a good thing to support the local economy.”
    Convergence Partners, led by majority owner Andile Ngcaba, chairman of technology group Dimension Data Africa and former director-general of the South African Department of Communications, formed New Dawn with financing from several South African banks. “The New Dawn joint venture, with its optimized satellite and African-led financing, represents a solution for Africa by Africa,” said Ngcaba. “Convergence Partners believes that investments in African projects of this nature can offer superior returns while also accelerating the socio-economic development of the continent,” he said.
    The satellite, dubbed Intelsat New Dawn, will deliver wireless backhaul, broadband and television programming to Africa from an orbital position at 33 degrees East and is expected to enter service in early 2011. The satellite will be operated and marketed as part of the global Intelsat fleet.
    The need for a new satellite to serve Africa is driven by an increase in capacity demand and the constraint of its supply along with the failures of domestically owned satellites such as Nigcomsat-1 in November. In order to satisfy the demand in Africa with a new satellite, McGlade said his company needed an economically viable approach. “We saw pricing go down in Africa for years — to a level that was not sustainable for our business,” he said. “At the same time, we had inflation in launch vehicle and satellite costs. Costs went up, transponder service price went down. That was not a good model for the future.”
    More than 50 percent of the satellite’s 28 C- and 24 Ku-band transponders already are under contract, with wireless, network and video service providers such as Vodacom International Ltd., Gateway Communications Africa (UK) Ltd., Zain Nigeria and Gilat Satcom among those making pre-launch commitments that have created a backlog of more than $350 million. “It’s everything from corporate networks to wireless backhaul to video applications,” said McGlade. The 33 degrees East “position is a great orbital slot. It is a good look angle, has good power and allows us to have great flexibility with its customers. We still have capacity to sell over time as well,” he said.
    Intelsat plans to keep transponder prices fair, said McGlade. “Intelsat New Dawn is fair pricing from our standpoint and it was something that customers were clearly willing to sign up for, some for up to 15 years,” he said.