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Investment and Finance: Brian Tellam moderating the conversation, introduces well-rounded panel. Finance & economic climate: everyone is involved, capital markets frozen, equity markets divided but provided an avenue to capital. Stimulus packages, signs of recovery are evident; mixed growth prospects around the globe, trade, commodities prices, volumes are recovering, public investment expenditure strong, private lagging. China and India growth increasing, equity markets turning around (graphs), corporate bonds and yields are normalizing. Corporate investment climate: conserve internally, especially if you couldn’t get it from external sources (unavailability, cost of borrowing, etc.) Growth prospects (and bargains) in developing world. Cash is king in certain markets. Impacts on investment climate for telecoms: larger players can acces capital, but new standards and rules (aggregating exposures, constraints on overall lending limts). General prospects: be cautious about next 10-12 months, stimulus package has done its job but private investment lagging. Short term fix, will take time to resolve. Structured debt subject to rigorous credit assessment and refinance on other support. Vendor finance: some available but limited, backed by government agencies. Bonds recovering, confidence in rating agencies weakened.
Charles Regan: Debt Capital Market Update. Loan market pricing in Asia: markets are relatively liquid, refinancing is common, more local currency loans, relationship loans being made. Syndicated market largely gone. Market prices up. Loan market trends in Asia Pacific: China very strong stimulus package, well managed (went out to market in 90 days). Hong Kong robust, India is local-market dominated. USD bond market update: high yield and investment grade bonds went quiet latter part of ‘08, only now starting to come back. Low interest rate environment, markets are hot, get longer term funding. Asian market updates (graphs), equities up, spreads down, issuances up. Many new issues (chart) have been over-subscribed (multiple times). There’s a lot of liquidity in Asia, and it’s generally stable (financial institutions there avoided the crisis), represents best growth opportunities. Credit criteria has completely changed in Asia, is now very tight, pricing increased. Not an easy market, but you get stuff done.
David Ross: Project Financing in the Current Market, an Experiential View. Before downturn: range of project and corporate start-up financing mechanisms was broader than any time in their 40 year experience. Notable: entrepreneurial telecom operators who initiated international project, selling shares to operators or investors. Have of all projects were initiated by single operator/investor. Also notable: range of government involvement, from trade and development credit agencies, government grants or direct ministry investments. Half of all projects had some form of governmental involvement, 15% initiated by governments (unprecedented). Since the downturn: project continue to emerge, there appears to be a continuing supply of funding but strong stress on rigor and planning, demonstration of viability. Too early and too few systems to provide high degree of confidence but observations include presence of entrepreneurial carriers, private equity investors, no governmental involvement in new projects.
Seth Davis, Riding the Wave. Lesson from History (to fortell the future?): market boom 1990-2000 and rush to wire the world. Collapse and significant loss of value. Rationalization of the market: pricing and utilization began to balance, strategic operators reassert market control, growth financing driven by proven demand. New builds based on requirements (not speculation), maybe economic stimulus. Case study: Pacific Crossing (trans-Pacific submarine cable system, financed by consortium of banks and equity from Global Crossing. 2002-2004: oversupply, capacity market crashed, pricing dropped, Pac Crossing declared bankruptcy, and debt-holders stepped in to run business, manage risk. 2005-2006: Tried to clean up debt/assets, regulators, keep carrier customers happy. 2007-2008: bankruptcy sale failed, new capital ($50M) raised internally, stablized capacity. 2008-2009: solicited & fulfilling strategic purchase of company. In bankruptcy sale, $63M price. Final sale to NTT (official price undisclosed).
Glenn Gerstell: Telecom Finance in the Current Economic Climate: Top 10 Checklist.
- Untapped markets mean higher risk profiles. Interesting action is in less developed world (e.g., India) and may not have been touched by telecom yet. These markets represent tight credit, higher risk.
- Never forget the equity. Strong sponsor support from strategic owners is critical. Private equity will remain players in telecom.
- Multiple debt sources inevitably lead to complex intercreditor issues. Spread risk, complexity, fit customary patterns w room to negotiate, multiple lender layers and rights enforcement.
- Taking up the shield against market and operational risk: terms are tightened, strong operational results, performance goals.
- Don’t overlook old-fashioned legal risk. Contractual enforcement in host countries, how realistic are remedies?
- Political risk? tariffs, changing rules of the game, etc.
- Bridge loans: solution or problems? acquisition rinance will be key in future, complex financing needs to be quick, bridge loans can help but carry risks
- Holding company loans and structural problems go hand in hand. Many jurisdictional aspects
- Collateral, collateral, collateral: technical and varied nature of collateral, security issues.
- Share pledges aren’t as good as they seem, may carry debt, but may be superior to foreclosure on assets
Major change and opportunities in development cycle? Seth: much more attention to detail, specifics of project plan. David: Certain sectors continue to be profitable and successful at raising funds. Nonetheless, it’s not so easy to get a project off the ground, energy pulled into analysis. Brian: if structural change, fundamentals and mechanics analyzed. Limited equity per number of projects managed. Glenn: securing spectrum and satellite rights (example company) could lead to a failure in business model. Similar problems could be in land use rights or other areas. Premiums on assuring internal teams are present to make things happen.
Entrepreneurial telecom operator? David: government involvement varied, opens up new possibilities, extends to benevolent rich countries.
Developing markets? Sometimes it’s a blessing not to have experienced a boom. Wireless is a form of boom (Africa), strong need for international communications, funding coming from Africa itself.
Glenn: as part of overall rigor, beginning of transactions banks are making it clear what kind of collateral they require, we also want counter-party to acknowledge funding priorities. Huge premium to sorting out things up front. Charles: credit departments are driving the deals. We’ve gone back to first emerging markets, Latin America/Asia, where all markets are wrapped up. Brian: heavy emphasis on infrastructure, content and contracts, otherwise business case falls away.
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