Telesat Stands To Gain as Canada Lifts Foreign Investment Limits

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PARIS — In a move that could pave the way for an initial stock offering by satellite fleet operator Telesat, the Canadian government on March 3 announced it will change Canada’s rules restricting foreign ownership of telecommunications providers.

“Our government will open Canada’s doors further to venture capital and to foreign investment in key sectors, including the satellite and telecommunications industries, giving Canadian firms access to the funds and expertise they need,” the government announced in a policy document, known as the speech from the throne, delivered to the Canadian parliament March 3.

Ottawa-based Telesat, which by revenue is the world’s fourth-largest commercial satellite fleet operator and whose ownership has been affected by the foreign-ownership rule, immediately endorsed the new policy in a March 4 statement.

“Telesat strongly supports the government’s decision to remove the foreign investment restrictions for our industry,” Telesat Chief Executive Daniel S. Goldberg said. “Although Telesat has invested billions of dollars in its satellite fleet to date, we need to continue to increase our scale in an industry where size confers key competitive advantages. By removing the investment restrictions, Telesat will be a more effective global competitor and able to invest in new and advanced technologies for the benefit of all Canadians.”

Goldberg struck a somewhat different chord in a March 3 conference call with investors on Telesat’s 2009 financial results.

Asked whether Telesat needs to expand, he said, “We’ve got sufficient scale. There is no strategic imperative for us [to expand]. There are not that many acquisition possibilities out there that would be a good fit with Telesat’s fleet.

Telesat in 2007 was purchased by Loral Space and Communications of New York and PSP Investments, a Canadian pension fund, in a deal that was structured almost entirely by the foreign-ownership limits. Loral owns a 64 percent economic interest in Telesat, but PSP controls 66.7 percent of the voting rights in the company.

Industry officials have said Telesat’s value to potential buyers likely would increase if the foreign-ownership rule were removed since much of the capital needed to purchase the company would be found outside Canada, and prospective buyers would pay more for a controlling stake.

Similarly, an initial public offering of stock would likely appeal above all to institutional investors and would need to offer a substantial percent of Telesat’s equity to be successful, industry officials said.

Telesat reported 787 million Canadian dollars ($748 million at Dec. 31 exchange rates) in revenue for 2009, an 11 percent increase over 2008. Helped by the decision by Bell TV to purchase all of the capacity on the Nimiq 6 satellite, the company increased its backlog by 15 percent since Sept. 30. Backlog stood at 5.5 billion Canadian dollars, giving the company one of the highest backlog-to-revenue ratios in the industry.

Nimiq 6 is scheduled for launch in 2012. In a similar deal, EchoStar of the United States, on behalf of satellite-television provider Dish Network, has purchased 100 percent of the capacity of Telesat’s Nimiq 5, which entered service in October for the satellite’s full 15-year service life.

EBITDA, or earnings before interest, taxes, depreciation and amortization, stood at 70 percent of revenue for 2009, up from 61 percent in 2008. EBITDA is likely to climb further in 2010, and was already at 74 percent of revenue for the fourth quarter of 2009, Goldberg said.

Some 52 percent of the company’s revenue in 2009 was from broadcasting, 44 percent from providing satellite capacity for enterprise customers for voice and data, and 4 percent from Telesat’s telecommunications consulting business.

Geographically, the revenue was 83 percent from North America, 8 percent from Europe, 6 percent from Latin America and 3 percent from Africa.

Telesat sold its interest in the Telstar-10 satellite in mid-2009, sharply reducing the company’s presence in Asia.