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Telesat’s efforts to finalize funding for US$5B Lightspeed project ‘not there yet,’ CEO says

March 29, 2023
4:38 PM
ET

Organizations: Bpifrance, Export Development Canada, S&P Global Ratings, Telesat, Thales Alenia Space

People: Dan Goldberg, Madhav Hari

Dan Goldberg tried to calm analysts’ concerns about the company’s financial future Wednesday, assuring them he remains “confident” the Ottawa firm will raise enough capital to get its next-generation satellites off the ground.

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Telesat’s chief executive tried to calm analysts’ concerns about the company’s financial future Wednesday, assuring them he remains “confident” the Ottawa firm will raise enough capital to get its next-generation satellites off the ground, despite delays that have plagued the multibillion-dollar project. Questions about the future of the satellite constellation, dubbed Telesat Lightspeed, dominated the company’s morning conference call with analysts to announce its fourth-quarter and full-year 2022 earnings. When the project was originally unveiled more than two years ago, Telesat said it expected the first Lightspeed low-Earth-orbit (LEO) satellites to be launched in 2024. But supply-chain disruptions and soaring costs forced the company to revise its timeline and the first Lightspeed satellites now aren’t expected to be ready until 2025. Meanwhile, Telesat has yet to round up all the financing it needs to cover the full cost of the project, which has an estimated price tag of about US$5 billion. On Wednesday, CEO Dan Goldberg said various investors, including the federal government, have committed more than C$4 billion in funding for Lightspeed. The rest of the money is expected to come from export credit agencies. Golderg said talks with Export Development Canada and French agency Bpifrance are continuing. “Unfortunately, we’re not there yet,” he told analysts. “We remain optimistic that we’re going to secure the financing we need to move forward with the program – recognizing, of course, that there’s no assurance that we’ll ultimately get there. We hope to be in a position to provide that clarity soon.” Telesat has said it’s open to seeking other investors to help bankroll Lightspeed if necessary. Asked Wednesday whether the company would target government agencies or private equity firms, Goldberg said he preferred not to discuss other potential funding sources. “I feel pretty good about where those (financing) conversations are, although it ain’t over ’til it’s over, so no guarantees,” he said. “Personally, I remain optimistic that we’re going to get the funding that we need to move Lightspeed forward,” Goldberg added. “There’s a lot of interest in LEO (technology) right now, and there are a lot of parties that share our vision that there’s a big opportunity there. There aren’t that many LEO operators out there that if you are bullish on the opportunity that you can put money to work with.” The focus on Lightspeed during Wednesday’s call reflects growing concerns among analysts about Telesat’s ability to deliver the project, which has already been scaled back from its original incarnation. The company trimmed about US$1.5 billion off its original budget and reduced the constellation from 258 satellites to 188 plus 10 spares amid supply-chain issues that hindered its efforts to close financing. Ongoing financing and production delays mean Telesat is in danger of falling behind in a fiercely competitive space that includes big names like Elon Musk’s SpaceX, Jeff Bezos’s Amazon-backed Project Kuiper, and U.K.-based OneWeb. Such obstacles don’t help a company that’s already carrying billions of dollars in debt. Worries about Telesat’s ability to service its debts prompted S&P Global Ratings to downgrade the company’s credit rating to CCC+ in December. S&P analyst Madhav Hari told the Globe and Mail earlier this year such a rating suggests a 50-per-cent chance of default. He said Telesat would need “extremely favourable” market conditions to keep making timely payments on its debt. Fears about the firm’s long-term financial health are also reflected in its market valuation. Telesat’s share price has tumbled from $49.76 a share when it went public on the Toronto Stock Exchange in November 2021, to $10.20 in late-afternoon trading Wednesday. Despite those headwinds, Goldberg said Wednesday he remains bullish on Telesat’s ability to produce a state-of-the-art LEO satellite constellation that will help satisfy rising demand for lower-latency broadband internet service. “We’re confident that (Lightspeed) is going to go forward and we’re doing real work on it,” he said, noting the company has budgeted between $40 million and $70 million in capital expenditures for the project in fiscal 2023. Goldberg said the firm has already received $750 million in advance orders for the LEO service, calling it a sign that customer interest in the constellation is strong. “We’re focused on Lightspeed because we think it’s a great commercial opportunity,” he said. “It’s taken us longer for sure than we originally anticipated, but I continue to believe that the original investment thesis is totally intact – which is to say, there’s a huge market for a well-engineered, well-executed, enterprise-grade, enterprise-focused LEO constellation.” Telesat bought back about $200 million of its debt from the open market last year and its board of directors has given management the green light to spend an additional $200 million to repurchase more debt “if it’s determined to be in the best interests of the company,” management said Wednesday. Meanwhile, Goldberg said pricing on contracts with major partners such as Franco-Italian manufacturer Thales Alenia Space, which is building the constellation, has stayed fairly constant despite rising inflation. “Fundamentally, the core building blocks of the project … remain intact,” he said. “I think we’re doing all the right things. We still have a great opportunity here and we want to get it right.” Telesat, which keeps its books in Canadian dollars, reported revenues of $759 million for the fiscal year ending Dec. 31, down about two per cent from 2021. The firm posted a net loss of $80 million, compared with net income of $155 million the previous year. Telesat blamed the reversal on higher non-cash losses from the conversion of its U.S.-dollar-denominated debt to Canadian currency, combined with the recognition of accelerated clearing payments for the repurposing of the C-band spectrum in 2021. The company is projecting revenues of between $690 million and $710 million for fiscal 2023. Management said Telesat expects to see smaller contract-renewal deals for major customers such as Bell Canada and the U.S.-based Dish Network, which contribute a significant chunk of its annual revenues.