WorldSpace Files on Nasdaq to Fight Downward Spiral

PARIS – Satellite radio operator WorldSpace Inc., which has had spacecraft in orbit over Africa and Asia for more than five years and has spent $1.2 billion on its system, has filed for a $100 million stock offering on the U.S. Nasdaq exchange in hopes of persuading investors that its new business strategy will pull the company out of its tailspin.

Washington-based WorldSpace, in a stock offering registration statement filed with the U.S. Securities and Exchange Commission (SEC), says that as of Jan. 1 it had only 53,000 paying subscribers worldwide.

In 2004, WorldSpace says, it posted a loss of $577.4 million on sales of $8.6 million. Three-quarters of its sales came from organizations in the United States and France, including government bodies such as the U.S. Agency for International Development, which have paid to broadcast programming over WorldSpace’s satellites.

For the three previous years, WorldSpace says, it reported total losses of $780 million on sales of about $33 million. Since 2002, a quarter of WorldSpace’s sales have been to the U.S. government for broadcast services.

In its SEC filing, WorldSpace says its founding chairman, Noah A. Samara, would retain controlling ownership after the stock sale. The company’s biggest creditor, Stonehouse Capital Ltd. of Jedda, Saudi Arabia, has agreed to have its $2 billion in WorldSpace debt converted into a royalty agreement under which Stonehouse will receive 10 percent of WorldSpace’s gross revenues between 2005 and 2015.

Stonehouse is controlled by Abdulrahman and Sultin Bin Mahfouz, whose family is a longtime WorldSpace investor.

WorldSpace also has completed an agreement with Yenura Pte. Ltd. of Singapore in which $256 million of WorldSpace debt was converted to Class B common stock. Salah Idris of Saudi Arabia, another longtime WorldSpace backer, is a principal backer of Yenura, but the company is controlled by Samara, according to WorldSpace.

WorldSpace and its system prime contractor, Alcatel Space of Paris, recently negotiated an agreement under which a $40 million debt was reduced to $19 million, of which $10 million was paid in cash in March. The remaining $9 million will be paid to Alcatel Space after the stock offering — $2 million in cash and $7 million in WorldSpace stock — unless the stock placement has not occurred by Jan. 31. In that case, WorldSpace will owe the full $9 million in cash.

Alcatel Space spokesman Laurent Zimmermann confirmed the WorldSpace-Alcatel agreement.

WorldSpace has been paying Alcatel and WorldSpace satellite builder EADS Astrium more than $1 million per year to store the fully built WorldSpace 3 satellite and a partially built fourth satellite at a Toulouse, France, satellite manufacturing plant.

Last December, WorldSpace issued $155 million in senior convertible notes. It is this money, plus the proceeds from the stock offering, that WorldSpace intends to use to refocus its business to provide subscription-based radio.

India would be the first market focus, followed by China and Western Europe.

WorldSpace began its subscription service in India in 2002 and now has 22,000 subscribers paying an average of $30 per year for 39 channels of music and information delivered in eight languages.

To fully develop the market in India — as in China and Western Europe — WorldSpace will need regulatory rulings permitting the company to install ground repeaters to permit WorldSpace signals to reach radios in urban areas and other places where the satellite signals are insufficiently strong.

Working through the regulatory regime in India, and then buying and installing the ground repeaters, will take time and resources, WorldSpace says in the SEC filing.

WorldSpace has a five-year service-provision agreement with China Satellite Communications Corp. of Beijing. The agreement expires in August but may be renewed for three years. Commercial service has not yet begun in China, but WorldSpace hopes to be able to reserve part of the stock-offering proceeds to establish a business there.

Signals from WorldSpace’s AfriStar satellite already are receivable in Western Europe, where demand for commercial-free satellite radio could be even bigger than it is in the United States, according to WorldSpace.

WorldSpace was an initial investor in XM Satellite Radio, whose U.S. subscriber base has surpassed 3 million, and XM continues to license WorldSpace technology.

The WorldSpace 3 satellite, WorldSpace says, could be used to start service in Europe, but it also may be needed to replace the AfriStar satellite at 21 degrees east longitude. AfriStar, launched in 1998, has suffered a solar-array anomaly and is losing power. Starting in 2008, WorldSpace says, the satellite probably will need to reduce the amount of radio channels it carries.