Markets lose nerve as satellite ventures stall

The world's finance markets have virtually closed their doors to satellite ventures during the past few weeks.

Investors, unnerved by trouble encountered by the two leading global mobile satellite telephone companies and a rash of recent satellite losses, are fretting over whether the billions of dollars they have sunk into the risky ventures in the past two years have been poured down a black hole.

Two events conspired to make 9 September the blackest day yet for mobile satellite investments: Globalstar LP's launch disaster, when a rocket malfunction resulted in the Loss of its latest 12 satellites; and the announcement from Iridium that its service start would be delayed until at least 1 November due to its need to carry out further testing.

But even before the bad news arrived, Wall Street analysts said the lending markets had shut down to satellite projects. The satellite business is being hit worse than other sectors in the face of economic crises in Asia and Russia, and the threat of a more widespread worldwide depression.

David Kenney, New York-based managing director of ING Baring Furman Selz LLC, a large international investment bank, said small capitalization companies in the early stages of development, with a negative cash flow and partially funded business plans, are particularly vulnerable. That description fits most of the satellite projects shopping for financing.

People look for launches and initiation of service [as events to drive stock prices]," said Kenney. 'We are in a very nervous market anyway-in a sector where a lot has been invested-and we're getting to very critical milestones."

Having provided investors with extremely high returns in 1997, satellite stock prices tumbled in August. Iridium's share price hit the low $30s in early September, a steep drop from the $70 range achieved in the spring. Globalstar dropped to about $15 a share in the days leading up to the recent launch disaster: The day after the loss, its share price dropped to $10.75. Globalstar also had been in the $70 range some months ago.

Markets will be back

Carol Goldstein, executive director at investment bank Morgan Stanley & Co., said with time the markets will be back to support more satellite projects. "Remember this is a marathon, not a sprint," said Goldstein. "These stocks trade on news [rather than on earnings reports]. People will be more skeptical in the future, but as these companies go in and produce results, all of this will be forgotten."

Few satellite companies have registered for offerings in recent weeks, but dozens of ventures are positioning themselves to tap the markets for the billions of dollars needed to build a wide range of mobile, fixed service and broadband-multimedia satellite constellations. In the near term, they include satellite radio broadcast projects Worldspace and CD Radio; in the further term, ventures as diverse as Matra's EAST satellite for African telecoms, Alcatel's SkyBridge broadband project and the Motorola-Bill Gates-backed project Teledesic had all planned to seek financing.

In July, London-based ICO Global Communications Ltd. was the last satellite venture to go to the market, raising almost $700 million in an initial public offering and bond deal. But conditions already had turned. On its IPO of stock, the company received a lower-than-expected share price-it was seeking $16-$19 per share but achieved $12-and cut the number of shares floated from 20 million to 10 million.

Orbcomm, of Dulles, Virginia, the little low earth orbit (LEO) data messaging satellite venture that will complete its satellite constellation in the next few weeks with a launch of eight more satellites, cancelled its IPO in June after investors priced the stock $1 below the desired price of $14. Orbcomm management opted to wait until the IPO market improves to sell 20% of its equity.

"First came the PanAmSat failure followed by the disclosure of Iridium satellite problems, and everything deflated," said Scott Webster, chief executive of Orbcomm. "But Wall Street is so fickle...a few pieces of good news [and they will] he back clamoring for deals."

                      Year-on-year satellite financing

                        3
1993 $0.814bn       Offerings
                        3
1994 $2.031bn       Offerings
                        7
1995 $1.769bn       Offerings
                       12
1996 $3.088bn       Offerings
                       24
1997 $6.139bn       Offerings
                       13
1998 $4.968bn (YTD) Offerings


Source: DJL Space Finance Group

                                 July '98

Destination   Index % change
Band-X comp.   77.4    -0.3%
United States  75.7    -1.3%
Ireland        73.0     0.0%
France         84.1     0.0%
Germany        81.7     0.9%
Italy          72.2     0.0%
Spain          74.9    -3.9%
Netherlands    63.6     0.6%
Australia      78.5    -0.3%
Canada         74.4    -1.1%
Belgium        72.6     0.0%
Switzerland    78.4    -1.6%
Greece         88.7     0.0%
Sweden         70.7    -1.2%
India         100.0     0.0%
South Africa   93.0     0.5%
Denmark        75.9    -1.3%
Portugal       85.0     0.0%
Turkey         96.2     2.0%
Hong Kong      69.3     0.9%
Pakistan       84.5     1.8%

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