Eutelsat Finalizes Plans To Go Public on Euronext Market

Satellite-fleet operator Eutelsat is entering the stock market hoping to position itself as a company promising shareholders a regular, if undefined, dividend while maintaining sales growth of 2 percent in 2005 and 4 percent per year between 2007 and 2009, company officials said.

Paris-based Eutelsat, currently owned by several private-equity companies, plans an initial public offering (IPO) on the Euronext market that is intended to raise around 1.2 billion euros ($1.44 billion).

The IPO, which was priced Oct. 11 at 15.25-17.75 euros per share, could raise up to 1.6 billion euros for Eutelsat’s current owners if shareholders exercise their option of selling additional shares, and if Eutelsat’s investment banks — Deutche Bank, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley — purchase the maximum number of shares reserved for them once the initial share tranche has been sold.

The sale will transfer between 38 percent and 51 percent of Eutelsat’s equity into the public sector and make Eutelsat the fifth global satellite-fleet operator to have publicly traded stock after SES Global of Luxembourg, PanAmSat Holding of Wilton, Conn., New Skies Satellites of The Hague, Netherlands, and Inmarsat of London.

Assuming the IPO is priced at 16.50 euros a share, Eutelsat will raise 860 million euros from the stock market. After subtracting 26 million euros in investment banking fees and 10 million euros in legal and administrative costs associated with the IPO, the net proceeds to Eutelsat will be 824 million euros.

Eutelsat Chief Financial Officer Claude Ehlinger said the funds will be used to reduce Eutelsat’s current 3.2 billion euros of debt. Credit-rating agencies have expressed concern that Eutelsat’s current debt load — equivalent to 5.5 times EBITDA, or earnings before interest, taxes, depreciation and amortization — is too high.

During an Oct. 11 press briefing here, Ehlinger said that after the IPO, Eutelsat debt would be cut to 4.1 times EBITDA and further reduced to 3-4 times EBITDA after 2009 when Eutelsat’s current fleet-expansion program is completed.

Eutelsat has two direct-broadcast television satellites scheduled for launch in 2006. Meeting Sept. 28, the company’s board of directors approved the construction of three more telecommunications satellites.

Eutelsat Chief Executive Giuliano Berretta said Eutelsat’s current five-satellite expansion plan will cost about 900 million euros and is proof that the company is positioning itself for growth, not just stable cash flow.

“We’re launching five new satellites in the next four years and we’re not lowering our guard,” Berretta told the Oct. 11 briefing. “We have to do this to maintain our growth.”

Central to that growth will be the introduction of high-definition television (HDTV) in Europe, a technology that requires, after accounting for data compression, about twice as much satellite capacity per channel as standard-definition television.

Eutelsat has endorsed market forecasts showing HDTV in Europe growing at 40 percent per year, on average, between 2005 and 2014, from 10 channels now to more than 400 in 10 years. Eutelsat’s recent contract with Sky Italia, valued at 1 billion euros over 20 years, is based on that broadcaster’s rollout of HDTV.

Ehlinger said Eutelsat’s capital expenses should settle to between 220 million and 230 million euros per year after 2009, once the five new satellites are in orbit.

The company’s expected cash flow, Ehlinger said, is more than sufficient to complete its current expansion plan, pay out a 4-4.5 percent dividend to shareholders and reduce debt at the same time. The company is making no promises about dividend payments beyond 2006, but Ehlinger said a competitive dividend is part of Eutelsat’s policy.

Ehlinger said that judging from Eutelsat’s EBITDA margin, the company is the most profitable of the global satellite fleet operators. For the fiscal year ending June 30, Eutelsat’s EBITDA was 77.1 percent of revenues, just ahead of PanAmSat (75.6 percent EBITDA margin), SES Global (73.4 percent), Intelsat (70.2 percent) and New Skies (57.2 percent).

Ehlinger said Eutelsat’s EBITDA margin is expected to remain around 76 percent through 2009.

Eutelsat operates a fleet of 23 satellites, including partly owned spacecraft, with its main business being distribution of video programming from its 13 degrees east longitude HotBird satellite series. As of June 30, its satellites were 73-percent occupied, a figure that places the company in the middle of the pack among its direct competitors.

In a document published Oct. 11 giving an update on its activities, Eutelsat announced that the expected in-orbit life of the Amazonas telecommunications satellite operated by Hispasat S.A. of Spain — in which Eutelsat has a 28-percent equity stake — will be less than 10 years.

The satellite has a fuel leak that occurred just after its mid-2003 launch, but up to now had been expected to complete more than 10 of its originally expected 15-year service life.

The company also announced that French tax authorities have questioned Eutelsat’s claim that it lost 140.4 million euros following its Hispasat equity participation. The loss was transferred to a little-known Eutelsat subsidiary in Germany and permitted Eutelsat to save 34.8 million euros in taxes. Eutelsat said it relied on independent expertise in reporting the loss and believes it acted properly.

The French tax investigation is continuing.