PARIS —
Having failed to auction itself off at acceptable prices, Satellite-fleet operator Satmex
now will
turn to its existing shareholders for cash
–
and to the Mexican government for badly needed regulatory reform, according to Satmex Chief Executive Raul Cisneros
.
A
meeting of Satmex shareholders
has been scheduled for mid-July to determine whether the struggling operator can count on them once again. Those shareholders include several U.S.-based creditors who took ownership stakes in Satmex following its emergence from bankruptcy proceedings in 2006.
Satmex
has three satellites –
two aging spacecraft and the new and promising Satmex 6. The company had hoped to use funds raised at auction to order a Satmex 7 satellite for replacement capacity.
But after months of preparations by Satmex and its investment advisor, Morgan Stanley, and some initial interest from
about 10 bidders, Satmex received only two formal offers when it closed the procedure
May 30.
The initial bidders included satellite-fleet operator SES and, in an unusual alliance, a joint team that included
Intelsat and Loral.
The bidders all had access to Satmex’s data room –
meaning details of its assets, liabilities and prospects.
The bidders peppered Satmex and Morgan Stanley with 1,900 formal questions. “It was a bit crazy trying to manage the company day to day and at the same time answer these questions in April and May,” Cisneros said in a June 12 interview.
But at the May 30 deadline, the only bids were from satellite-fleet operator Eutelsat of Paris, joined by Mexican partners; and from Mexican businessman Moises Saba Masri. Both fell short of the $500 million minimum and were rejected.
Cisneros declined to detail the two bids, but said “the difference between them was negligible. Both were below the set reference value. Our equity holders told us they wanted to sell the company at a reasonable price only. They said they would be available, if the auction did not succeed, to raise new equity and debt. We are negotiating with these investors now and have suspended the auction.”
Satmex
, which reported 2006 revenue
of $79 million –
up from $70 million in 2005 –
has $380 million in debt.
Cisneros said his priority is not so much to reduce debt levels as it is to reduce the cost of the debt and to order a Satmex 7 spacecraft.
Satmex’s
Solidaridad 2 satellite is expected to be retired in late 2008. The company’s other satellite, Satmex 5, has had a history of in-orbit component failures.
Cisneros agreed that, in the long term, Satmex’s current investors will want to exit the company. He said the failure of the auction can be attributed to several causes, including the still-weak market in Latin American for leasing transponders.
In addition, the Intelsat-Loral joint bid, which included Intelsat’s long-time Mexican partner, GrupoPegaso, came at a time when both Intelsat and Loral are preoccupied with other corporate-ownership matters.
Washington- and Bermuda-based Intelsat’s current private-equity investor owners are soliciting bids to sell the company. Offers were due by June 15, with a sale considered likely by July, industry officials said.
New York-based Loral has agreed to merge its satellite-operating division, Loral Skynet, with Telesat Canada. Loral will have majority ownership of Telesat –
with minority voting rights in keeping with Canadian law. The deal is expected to close this summer, Loral has said.
Intelsat spokeswoman Dianne VanBeber declined to discuss whether Intelsat formally bid for Satmex, but said that as a general rule, “companies that compete with each other also can work together from time to time.”
John McCarthy, spokesman for New York-based Loral, also declined to comment on whether Loral made a bid for Satmex.
Intelsat
recently has decided to boost its involvement in Latin America by agreeing to move its Galaxy 9 satellite into an orbital slot owned by the Argentine government. The C-band satellite has enough remaining fuel to operate for another two years, but could be operated for several years longer in inclined orbit –
meaning it is no longer kept stable on its north-south axis, saving fuel.
Cisneros said one key factor that hindered the Satmex auction was the Mexican government’s insistence on having free access to 360 megahertz of satellite capacity across the three orbital slots used by Satmex. That’s equivalent to 10 standard-size transponders –
which was “a huge factor” in the auction, an official with one bidding company said.
While the Mexican government rights to this capacity was known to all bidders, industry officials said some bidders hoped the government would change its policy in the face of buyer resistance.
This did not occur, and Cisneros said Satmex will now try
to persuade Mexican authorities to reduce their allotment. One option, he said, would be to operate Solidaridad-2 in inclined orbit, ceding full use of the L-band mobile-communications payload to the Mexican government for the remaining life of the spacecraft.
“This would permit the satellite to operate for 10 or more years,” Cisneros said. “We have begun negotiating with the government on this point.”
