Presented by:-Rohit Jain

Shally Rathi

Overview

12,500km cable from Sydney

Australia to Japan via Guam at a cost of $520m

Key sponsors: Japan Telecom, Telstra and Teleglobe. Asset life of 15 years

Potential Sponsor: AT&T , NTT, MCI WorldCom

A Joint Feasibility study was carried out for the sponsors

Submarine Cable Industry

Submarine Cable Technology

Demand for Submarine Cable Systems

From 1990 to 1999, the global telecommunications market grew at a compound annual rate of 10.2%

US$348 billion to US$835 billion In the late 1990’s the demand grew & faster

growth in capacity caused prices to fall at a rate of 20% to 40% per year

Ovum predicted that the cost of an STM had fallen from US$10 million in 1998 to US$5 million by the end of 1999, would be US$1 million by 2003

As a result, system owners faced front-loaded revenue & cash flow streams.

Financing

Reasons – Club Financing

Expensive

Slow & predictable growth in demand

Limit their exposure

Private Carrier Deal Structure Larger blocks of capacity Quicker execution Competitive Market prices below their costs First Deal:-Cable & Wireless and WorldCom(1995)

Gemini – 20 Gbit/s (US & UK)

Private Non-carrier Deal

Ownership of cable systems to non – carriers such as private investors

In 1996, the Pacific Group, a private investment firm completed the first private no carrier deal to raise equity to build Atlantic Crossing-1 (AC-1)

Building Submarine Cable Systems First, system owners needed to

choose equipment suppliers and sign supply contracts

Second, system owners hired cable ships to install the cable and repeaters as the cable ship industry was highly concentrated

“Landing Party Agreements” – a contract to use preexisting stations

Australian Submarine Cable Industry 1999 – 3 Australian Traffic Cables

1.SEA-ME-WE32.PacRim East & West3.Telecom Corporation of New

Zealand, Cable & Wireless of Australia, and MCI WorldCom of United States

Southern Cross Cable Network US$1.2 billion cable network

29,600 km loop configuration system

Linking east coast of Australia, New Zealand & United States

Merrill Lynch analysts conducted an independent analysis of the project

The Australia Japan Cable (AJC) Telstra - leading telecommunication

and information services company

International transmission infrastructure included both satellite and submarine cable transmission

Major submarine cable investment- SEA-ME-WE3, China-U.S. cable and Japan-U.S. cable

PHILOSOPHY

“Sell shore to shore service on a wholesale basis and AJC should be producer of basic capacity services with wholesale and retail sellers between AJC and the end users”

Execution Process of AJC Telstra commissioned $6 million feasibility

study in mid-1997 for AJC through Guam

Reasons to go through Guam:-1) More efficient to surface and repower the

signal than send it all the way to Japan2) It could connect with other cables running

through Guam

Use of Collapsed Ring Configuration

Australia Japan Cable (AJC) System would use Telstra’s 2 landing stations near

Sydney

In Guam, the project could contract with AT&T to use landing stations

Telstra envisioned private carrier deal using project finance structure to fund construction

Telstra engaged ABN AMRO to advise on financing strategy

Brian Tellam, director of project finance at ABN AMRO, believed project could support highly leveraged capital structure

Funding:-

Risk’s - AJC

Market risk due to presence of number of competitors.

Completion delay due to environmental approvals and other permissions

Physical construction was not a big deal

Debt Tranches

Telstra envisioned 2 debt tranches:-

1) Tranche A- secured and repaid (within 5 years) with pre sale commitment

2) Tranche B- repaid from future sales of capacity to other parties (within 5 years)

Contd..

Findings of feasibility study :-1)There was more than sufficient

capacity demand2)Expected cash flow could support

highly leveraged capital structure

Japan telecom and Teleglobe agreed to sign MOU with Telstra

Structuring The Project Company

Project Governance

Key Issues:-

Limited growth potential

Market risk from fast changing telecom market

Risk from project delay

Specialized use asset

Current Updates

http://www.ajcable.com/news-and-media/australia-japan-cable-collaborates-to-create-a-connectivity-solution-on-aag/

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