Shin Satellite Public Company Limited has been a leader in many respects. The company was founded in 1991, after it was granted the first license to launch and operate satellites in Thailand. To date, Shin Satellite, a subsidiary of Thailand's largest telecommunications group - Shin Corporation - is still the only local satellite operator in Thailand. The company has also broken new ground in the Thai debt market. In November 1999, the company successfully launched a Bt3 billion ($68.7 million) deal that set the standard for public disclosure in the otherwise very private market. In this interview, Dr Dumrong Kasemset, executive chairman of Shin Satellite, talks about future plans and future deals.
Q: Shin Satellite seems to be expanding aggressively throughout IndoChina and South Asia. What areas are you targeting for growth and why?
A: Right now the area that is growing the fastest is South Asia. East Asia is also growing, but is still suffering from the aftermath of the crisis. South Asia, particularly India, was never in the crisis and consequently is growing exponentially, particularly in telecoms and the media. There is a lot of demand and with the recent liberalization policies of the government; this is really pushing the industry forward. And we are happily part of that upturn and jet stream of liberalization in India. India today constitutes 25% of our revenue and next year I would not be surprised that the share goes up to 30%. South Asia is the key market for us.
Q: What particular industry areas are you targeting?
A: We are basically in the media industry. The biggest and most economical use of satellites would be in broadcasting. Right now we have over 20 channels to India, broadcast into 40 million homes. With the new liberalization policy of the government, which opens up the direct-to-home broadcasting, this will increase the scope of our services to India.
Q: What about the Internet?
A: The internet is the other part that is growing tremendously, for the past two, three years. The Indian government has used us for their telecommunications applications, particularly the telephone traffic connections. But recently the demand has grown, particularly in regard to the internet backbone business. The government has also liberalized the system to allow internet service providers to hook up to any foreign carriers that they so wish to, and they have also made it easier to set up international gateways to any satellite they approve of and currently we are one of the approved satellites. So that means we are in a position to take advantage of the growth of the internet, which is enormous for India.
With regards to Thailand, the broadcast industry is still not fully liberalized and satellite TV broadcasting of the type allowed in India is still not allowed. Our customer, UBC, broadcasts for pay TV via our satellite, but they are not allowed to have advertising revenues. So they collect subscriptions only. Also, the network broadcasting commission (NBC) is not set up yet; consequently there are no new licenses to allow the use of our new satellite. But we expect with the new government coming in, the new NBC would allow additional licenses. By this time, our business in Thailand in the broadcasting area will pick up. Where the government in Thailand has been liberalizing is the internet area. We are the largest ISP backbone provider in Thailand. The largest growth segment in Thailand for us at the moment is the internet. Both on a wholesale and retail level.
Q: You have been funding your growth by refinancing your foreign currency debt through the local debt markets. Is this typical of your financing structures and will you continue to fund your plans this way?
A: That will depend on the conditions of the market. Historically, the local markets have been unusual in that interest rates have been very low and liquidity high. Consequently, good corporate issuers like us have had an easy time issuing bonds. We have done it successfully twice already. If the present conditions remain, that will give us good opportunities to access the market from time to time. But, we don't raise debt for debt's sake. We raise debt only to the extent required, for our network infrastructure roll out for example. We are a very conservative company, we would like to minimize debt and raise equity. Last year we raised equity as well as debt. Consequently the debt to equity ratio of our company is a healthy 1:1.
Q: Do you have any plans to go into the international capital markets?
A: Not at the moment, because our only project of the moment, iPStar-1 is going to be funded 50% through Exim bank finance and the other 50%, maybe with a combination of local bonds. We still haven't decided what portion will be US dollar denominated and what portion will be in local bonds. But we expect to raise between $140 to $250 million via those combinations. The rest will be provided on our own equity cash flow and cash from strategic partners who are part of the iPStar-1 project from a distribution point of view. They will be taking capacity of our satellite outright on an IRU (indefeasible right of use) basis and they will pay a certain amount to ensure this right.
Q: When do plan to finalise the iPStar-1 project finance?
A: We are taking care of the financing in stages. Because the funding of the satellite has the longest lead-time, we are starting with that first. We have secured the manufacturing and now we look to secure the financing. Twelve months from now we are will be doing the launches, and we will be thinking of financing through debt and equity again, and then six months after that we have to think about insurance and the gateways within fourteen countries.
Q: As for iPStar-1, Shin Satellite said in August that it was going to be financed via a combination of 15% equity and 85% export finance.
A: Typically, the Exim bank will lend up to 85% of the cost. But we would not necessarily want all of it; perhaps the gearing is too high. We are currently only in the first phase of financing the satellite only which is roughly half of the project cost. Since the export finance rule allows us to ask for up to 85% of the cost of the cost of the satellite that is the first option that we are pursuing. But it doesn't mean that if we get approval for the full amount, that we will actually exercise the full amount. It has to be looked at in relation to full cost of the project. If it is such that the cost of financing through the Exim bank is way too high, we will think about issuing bonds. But if the Exim bank package is good, we will take the whole 85%. The other 15% will be through equity or strategic investors.
Our preference, frankly, is to finance through the equity side. That is, if equity is a little more than debt, we don't mind, that would reduce our gearing ratio of the project overall and of the company.
Q: The last time I spoke to Shin Satellite, your spokesperson said that with regards to iPStar-1, you would not take on passive investors like financial institutions, only strategic investors.
A: I think that that is a little too strong. But our preference is for strategic partners, ones that will add value to the project. Strategic partners are essentially ones that distribute to the market and will obviously bring a lot more to the project. But that doesn't mean that at some point in time, say in two to three years from now, and we sell past the breakeven stage, [and] we may be ready for the next stage of expansion, we will not take on financial institutions. After the satellite is fully secured and financed we will have to think about the next project.
Q: And how do you think the next project will be funded?
A: I'd like to think about that when this project is over! We have many possibilities, private equity or even public equity is possible.
Q: Do you find the attitudes and expectations of your local investors differ to your foreign ones?
A: Not that different. Investors everywhere want return and want low risk. Obviously the demand and supply situations differ. In some countries, the partners are more enthusiastic than others. This is because they see the demand they can profit from. Some are little slower. Our focus right now is to close out the $100 million equity investment from strategic partners.
Q: You mentioned before that with the next project you may look for more public equity, would you list on other stock exchanges?
A: Too early. The project finance for iPStar-1 is very clear. But the next project will be very different. The environment 12 months from now may be very different. We may have plans to list but we can't say! Speculation is very dangerous.
