Spacecom: Amos 2 will reach full capacity by year-end

Spacecom Satellite Communications is starting the planning for the Amos 3 communications satellite.

Spacecom Satellite Communications had a good year in 2003, launching the Amos 2 communications satellite, and starting planning for the Amos 3.

Spacecom published its financial report for 2003 yesterday. The report itself is not particularly interesting, since it covers the period before the launch of Amos 2. Spacecom only operated its veteran Amos 1 satellite during the year, posting a net profit of NIS 3.7 million on NIS 8.7 million in revenue, compared with a net profit of NIS 2 million on NIS 13.1 million in revenue in 2002.

Spacecom's more interesting story is Amos 2, which began transmitting on February 29, 2004, after a delay of over 18 months.

Spacecom's troubles with France's Arianne began in first half of 2003, when Arianne notified Spacecom that it was postponing the Amos 2 launch, schedule for June, due to the delay in launching another satellite that had priority over Amos 2.

In addition to the business loss, the postponement caused problems with Spacecom's bondholders. Although Spacecom had sufficient cash, it could not pay the $1 million semiannual coupon to the bondholders, because its backers, Bank Hapoalim (LSE:BKHD; TASE:POLI) and Bank Leumi (TASE:LUMI), used their rights under the financing agreement to veto this use of cash. The banks had the right to veto payments to the bondholders if Spacecom failed to launch Amos 2 by the payment's due date.

Spacecom quickly tried to minimize the damage. First, it found an alternative launcher, Russia's Starsem, which launched Amos 2 in late December. Second, after trials and tribulations, a special bondholders meeting approved a new bonds agreement, stipulating that Amos 2 would be launched before the end of 2003. At the end of December, Spacecom paid the interest due in June, plus 3% compensation, as well as the semiannual coupon due in December. Payment of the principle, originally due in December, was deferred to June 2004.

Spacecom CFO Itzhak Shnaiberg said yesterday that Amos 2 began transmitting at the end of February. Spacecom now has broadcasting agreements for 85% of the satellite's capacity, which will generate $325 million in revenue through the satellite's 11-year lifespan. Shnaiberg says Spacecom is negotiating more agreements, which he believes will fill Amos 2's capacity by year-end.

Amos 2 has three broadcasting footprints: Israel and the Middle East; Europe; and the East Coast of North America. Spacecom bought Amos 2 from Israel Aircraft Industries (IAI), which was responsible for its construction and launch, for $130 million. Spacecom used $100 million in bank loans and bonds and $30 million from vendors' credit to pay for the satellite.

Shnaiberg says despite the damage (mostly to image, but also higher financing costs and the delay in revenue from customers), Spacecom has no plans to sue Arianne for the six-month delay in launching Amos 2. "Our customers were directed to alternative satellites. We decided to focus not on the past, but on the future, in other words, in designing the next satellite, Amos 3."

Shnaiberg says Amos 3 will probably be launched by the end of 2007, when Amos 1 lifespan is due to end. Drawing up the specifications and design for Amos 3 is scheduled to begin by the end of this year, at which point Spacecom will decide on how to raise the capital needed to build it.

Will Spacecom become a full public company, instead of a private company owned by IAI, Eurocom Communications, C. Mer Industries (TASE:CMER ), and General Satellite Services Co. (GSSC)?

Snaiberg: "The question whether or not to hold an IPO should be directed to Spacecom's shareholders. It's premature to talk about it, but when the subject becomes more relevant, we'll discuss all the possible means of financing, taking the market climate into account."

Due to the heavy financing Spacecom need to build Amos 2, the company's equity is now only NIS 50.4 million, which finances a balance sheet total of NIS 585 million. The company's total debt is NIS 512.5 million. On the other hand, Amos 2 is booked at a value of NIS 526.3 million.

Spacecom's bonds underwent a sharp correction recently. A year ago, the dollar-linked bonds were traded at a junk gross yield of 27%, and they are now traded at a much lower return of 11.2% (dollar-linked), after Spacecom's resolved its problems in launching Amos 2.

Published by Globes [online] - www.globes.co.il - on March 22, 2004

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