SES Likely To Order Up To Four Satellites

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PARIS — Satellite fleet operator SES on May 22 said it is likely to order at least two, and possibly four, new satellites to be launched between 2015 and 2017 for Latin American and Asian markets, and that its 46 percent equity stake in satellite-broadband provider O3b Networks likely will lead to 100 percent ownership or a spinoff of the company through a stock market offering.

Luxembourg-based SES, which is midway through a large capital expansion that will see seven more satellites launched in the next 30 months, said its appetite for investment has not been dulled by the fact that more and more developing nations want their own national telecommunications satellites.

The company said that in addition to national programs under way in Argentina, Azerbaijan, Bangladesh, Belarus, Bolivia, Turkmenistan and Ukraine, among other first-time owners, telecommunications satellite development efforts are taking shape in Algeria, Morocco and Oman.

These and other national initiatives are reducing the total global market share of telecommunications satellite capacity operated by the largest established fleet operators, starting with SES and Luxembourg- and Washington-based Intelsat.

But reduced market share does not mean reduced revenue given rising overall demand for capacity driven by the global appetite for television programming, SES said.

In a series of presentations to investors May 22, SES officials stressed that the company’s expansion is aimed at those markets where the growth potential is viewed as strongest. While it will not invest in a new satellite without having a secure anchor customer, the company is ready to spend up to 1 billion euros ($1.3 billion) between now and 2017 on four satellites, two each for Latin America and Asia.

SES Chief Executive Romain Bausch said the addition of up to four new satellites to SES’s planned capital spending will not change the company’s announced policy of increasing its stock dividend by 10 percent annually.

Meanwhile, O3b Networks, with SES as the key investor, is building 12 satellites to be launched on three European Soyuz rockets in 2013 and 2014 into an unusual orbit 8,000 kilometers above the equator. The satellites will train Ka-band bandwidth on developing countries located between 45 degrees north and south of the equator.

O3b’s business plan is to offer broadband links to national telecommunications operators for cellular backhaul for mobile broadband and for Internet Protocol trunking in nations that are now wealthy enough to have large populations with mobile broadband devices but whose terrestrial infrastructure has not kept up.

SES has invested $190 million in cash in O3b that, coupled with in-kind contributions, gives SES a 46 percent equity stake. Bausch said SES has every intention of increasing its ownership to at least 50.1 percent. At that point, O3b would be spun off through a public stock offering, or SES would purchase the remaining 49.9 percent ownership.

Each O3b satellite has a 10-year operational life and ultimately should be generating $40 million per year in revenue. Bausch said O3b should generate the same gross profit margins that the large conventional satellite fleet owners regularly report, meaning earnings before interest, taxes, depreciation and amortization (EBITDA) of at least 70 percent of revenue.

Built by Thales Alenia Space of Cannes, France, the satellites are expected to cost slightly less than $95 million apiece, a figure that includes construction, launch, insurance and a pro rata share of O3b’s ground network. Depending on when O3b orders satellites to increase the constellation’s size, the per-satellite cost should drop to less than $70 million, Bausch said.

By SES’s calculations, O3b will have an equity value of between $1.5 billion and $3 billion as a 12-satellite constellation — between six and 10 times its annual EBITDA — with $800 million in debt. Much of O3b’s current debt is backed by France’s Coface export-credit agency and carries an annual interest rate of less than 6 percent.

Bausch and Gerson Souto, SES’s chief development officer, declined to give an update on O3b’s current backlog, which O3b officials in the past have said was $600 million.

SES’s equity valuation of O3b assumes only the 12 satellites now under construction. But the O3b business plan foresees 20 satellites in total, and the medium Earth orbit that O3b uses can in theory support up to 120 satellites.

Each satellite has 10 Ka-band beams covering a 700-kilometer-diameter area and will circle the globe four times per day. Each beam can provide slightly more than 1 gigabit per second of throughput. Souto said the satellites will provide full-country coverage to some 177 nations.