[Satellite News 11-17-09] Asia Broadcast Satellite’s (ABS) deal to acquire Mabuhay Satellite Corporation (MSC) was seen as an aggressive approach from the company as it looks to boost is fleet in 2009.
    However, according to ABS CEO Tom Choi, the operator is not done yet and in an interview with Satellite News, said that the operator has plans to buy “at least one more satellite in orbit” before 2012.

Satellite News: ABS-2, Koreasat-2, MSC, The company seems to have been very aggressive in its expansion plans in 2009. Could you explain the sudden ramp-up of activity and how you hope to position the business over the next two years?

 
Choi: I think the reason why you are seeing M & A activity happening and the acquisition of in-orbit assets, is because ABS-1 is full, and we don’t want to see a slowdown in terms of revenue growth or EBITDA growth during the period between now and the delivery of ABS-2. We are using our financing ability to take on additional debt, to look for smart transactions, where we can pick-up in-orbit capacity and provide it to our customer base. This will also build a stronger business case for ABS-2. When ABS-2 arrives, we will be able to achieve a higher fill rate because there will be these in-orbit assets providing services on a geostationary or an inclined basis, which can then be transitioned to ABS-2.
    We are constantly looking for opportunities and ways to expand our business into other industries that are complimentary with satellite infrastructure.  Prior to 2012, we are planning to look to acquire at least one more satellite in orbit by purchasing it or by doing an M&A transaction.

Satellite News: Does ABS have further financial leverage to do further deals right now? How many satellites ultimately do you want in the ABS fleet over the next 2-3 years?
 

Choi: ABS has less than 1.5 times EBITDA of debt. This is before Mabuhay acquisition which means that our total debt load is quite low. We have the ability to lever up the company significantly more than that. The debt we are taking on, which is quite significant, will be for ABS-2. Depending ultimately on how much we need for that program, and we are in negotiations right now with other Condosat customers, we may have room or not have room, to take on additional leverage to fund additional transactions. We don’t have much debt today but we will have a significant amount of debt once we finalize the financing for ABS-2. Regardless we hope to have enough flexibility to fund transactions beyond Mabuhay.

Satellite News: What do you see as the significance of the recent deal to acquire Mabuhay?

 
Choi: The Mabuhay acquisition is a very significant deal for ABS. It represents a doubling of the in-orbit capacity that we have in our fleet with now over 100 transponders. We will increase our revenues and EBITDA by around 60 percent. That is without increasing the utilization rate on Agila-2 or getting better transponder yields. In effect, we may be able to double our revenues once we better utilize the capacity on Agila-2 which we are renaming to ABS-5.

 
Satellite News: What does this deal bring to ABS that you didn’t have before? What do you see as the long-term benefits to ABS?

 
Choi: We are looking at two major areas where we will get a strategic benefit from this transaction. Firstly, 100 percent of Mabuhay’s revenues come from Asia, from broadcasters and corporations. We are very interested in expanding Mabuhay’s contribution to our revenues, top line as well as bottom line. I mentioned earlier we have less than ten percent of our revenues coming from Asia. So, we will be adding to that and the Asia Pacific region will now become a significant part of the business. It will become 30-35 percent of our total revenue contribution. We want to get more Asia customer contracts as ABS-2 will also give us a lot of Asia Pacific coverage. We are also going to try and replace the Agila-2/ABS-5 satellite before it runs out of GEO fuel. Secondly, outside of the business in Asia, ABS traditionally do not own any TT & C facilities. By doing this deal with Mabuhay, we acquire the Subic Satellite Center which is significant as we will now have people to control our satellites (ABS-1, ABS-1A, ABS-2, Agila-2/ABS-5 etc), as well as any other satellites we will acquire. Over the long term, this will provide significant savings and resources for our future operations.
 

Satellite News: The MSC Agila-2 satellite was built in 1997. When do you expect to have to replace that satellite? How do you view the DTH opportunity as a result of this deal?

 
Choi: The satellite will last up until the end of 2011 on a geostationary basis. We believe we can use it for another several years on an inclined mode. It has got a very big dish distribution neighborhood in the Philippines and other countries. We do want to explore how we can better monetize that neighborhood in terms of content and programming. We definitely want to work with Dream, in terms of enhancing their profile. We will start initiating those discussions next week.
 

Satellite News: When do you start the process of replacing Agila-2? Would the replacement satellite be a much bigger one in terms of capacity?

 
Choi: We are already doing this and we will decide by December or the first quarter of next year in terms of a potential replacement. It takes more than two years to replace a satellite. If you let the satellite be in inclined orbit for too long, you are not going to have FSS customers. We either need to go for a replacement or continue with ABS-2 as the long-term replacement for those customers on Agila-2/ABS-5. If we have a replacement satellite, considering the schedule we have, it would not be a big satellite.

Satellite News: How are you funding the deal?

 
Choi: We are funding it with our own cashflow. The value of the transaction is quite significant.

 
Satellite News: Finally, what do you see as the major challenges for ABS over the next 12 months? Where do you hope to position the company on a global landscape?

 
Choi: The biggest challenge for ABS over the next 12 months will be integrating the business of Mabuhay into our operations and showing those customers that there is a credible replacement plan and ensuring those customers continue with the ABS/Mabuhay business. The second set of challenges will be boosting the fill rate on ABS-2, which is an enormous satellite. We already have $300 million already committed on a contractual basis. Over the next 12 months, I would like to get the satellite 75 percent full, prior to launch. So, filling up ABS-2 and integrating the Mabuhay business will be key challenges for us. I am confident we can achieve those objectives.
In terms of where we will position the company globally, I would like us to be a very strong, Eastern Hemisphere operator, whose reach expands from the Pacific Ocean to the Atlantic Ocean. We would like to be a multi-regional operator in Asia, the former CIS countries, the Middle East, the Indian sub-continent, Africa, and potentially Europe, if we can get an orbital slot. We want to be a company gaining $200 million a year in terms of sales and 3-4 satellites in orbit over the next 3-4 years.