Market Insight

Arabsat to buy Hellas Sat from debt-ridden OTE

February 11, 2013

Constantinos Papavassilopoulos Constantinos Papavassilopoulos Principal Research Analyst, Service Providers & Platforms

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Leading Middle East and North Africa satellite operator Arabsat Satellite Communications (Arabsat) has agreed to acquire Hellas-Sat from Greek incumbent OTE. An agreement was signed on 7 February covering the acquisition of OTE's 99.05 per cent equity participation in Hellas Sat by Arabsat. The deal is valued at €208m, made up of the €157m enterprise value of Hellas Sat (seven times the 2012 EBITDA of the company), cash balances of €53.4m and a €7m dividend for OTE shareholders. The buyer is Arabsat Cyprus Ltd, a 100 per cent subsidiary of Arabsat.

Hellas Sat possess the exclusive rights to use the orbital position of 39 degrees East as well as all associated radio frequencies from the Hellenic Republic and the Republic of Cyprus. HellasSat2 satellite's footprint covers Europe, MENA and South Africa and currently the company has over 100 customers in 26 countries. Hellas Sat 2012 revenues amounted to €31m. Arabsat forms one of the major providers of satellite services for MENA and the whole African continent. The shareholding structure of the company is split among the 21 countries-members of the Arab League, with the Kingdom of Saudi Arabia, the United Arab Emirates, Qatar, Kuwait and Libya as major shareholders.

The deal represents a major breakthrough for OTE considering the unstable economic environment in which it operates. The Greek telco experienced a drop of 8.1 per cent of its recorded revenues, to €5.038bn in the 2011 financial year. Furthermore, its long-term debt increased 28.9 per cent year-on-year, reaching the sum of €4.1bn. Greece, OTE's largest geographical market, has been in recession since 2008, a decisive factor which further impacts on OTE's liquidity and, as a consequence, is preventing the Greek telco from obtaining finance to fund its activities. As the situation in Greece is not improving and thus is not helping OTE to generate sufficient cashflow from its operations in the country, the selling of its assets seems at the moment to be one of the very few options that OTE can follow in order to service its debt.

The Greek telco is active in almost all of the Balkan countries but only two of them (Greece and Romania) accounted for 90.3 per cent of its total revenues. In both countries, revenues decreased considerably in 2011. In addition, the company needs cash to fund its ambitious Next Generation Networks (NGN) plans in Greece and Romania. In Greece, it already offers VDSL2 broadband services with speeds up to 50 Mbps per household. OTE has already divested from its mobile communications venture in the Former Yugoslav Republic of Macedonia and has put on sale its mobile communications company (GloBul) in Bulgaria. From 2008 OTE's major shareholder has been Deutsche Telekom (it currently holds 40 per cent of the shares) which also controls the management of the Greek telco.

For Arabsat the deal is also beneficial as it will allow it to expand to new orbital positions, to new frequency rights and, most importantly, to enter new markets. Arabsat's ambition is to become a global satellite operator and its recent move is serving that purpose. Arabsat currently manages six satellites: Arabsat 2B, 5A & 5C and Badr 4,5 & 6. Under the deal with OTE, Arabsat is committed to launch a new satellite in the same orbital position around 2018 (a satellite's active life is normally 15 years and HellasSat2 was launched in May 2003). Before this date, Arabsat plans include the launch of three further satellites: Badr 7 (in 2015), Arabsat 6A (in 2015) and Arabsat 6E (in 2016). The new satellite will keep the name HellasSat (possibly HellasSat3) and all its telemetry, tracking & control stations will continue to operate from Greek and Cypriot soil.

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