Australia – Japan Cable
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Transcript of Australia – Japan Cable
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/
THANK YOU