Telesat and Government of Canada Agree to Terms on C$2.14 Billion Loan in Support of Telesat Lightspeed
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Insights
The arrangement between Telesat LEO Inc. and the Government of Canada (GoC) represents a significant public-private partnership in the space sector, with potential macroeconomic implications. The investment of C$2.14 billion by the GoC in Telesat's Lightspeed project is a substantial capital injection into the space industry, which is known for its high entry costs and long-term return on investment. This move could signal confidence in the commercial viability of low earth orbit (LEO) satellite technology and its applications, such as global broadband connectivity. From an economic perspective, the expected creation and sustenance of high-quality jobs and the stimulation of domestic innovation and exports align with broader economic development goals. However, the loan's interest rate being tied to the Canadian Overnight Repo Rate Average (CORRA) plus a margin could introduce financial risk should the reference rate increase significantly over the loan's term. The government's equity stake through warrants also suggests an expectation of substantial future value creation by Telesat LEO, which could yield long-term financial benefits for the public sector.
The financial implications of the GoC's investment in Telesat LEO are multifaceted. The loan terms, specifically the interest rate pegged at 4.75% above CORRA, are favorable for Telesat when compared to private sector borrowing costs, potentially saving the company approximately US$750 million. This reduced cost of capital enhances Telesat's financial flexibility during the construction of the Lightspeed constellation. The 15-year maturity and sculpted amortization post-construction period provide a manageable repayment schedule that aligns with the expected operational cash flows from the broadband services. The equity stake for the GoC through warrants based on a US$3 billion valuation adds a layer of complexity to the deal, as it dilutes existing shareholders but also potentially reduces the financial burden on Telesat by aligning government interests with the success of the project. For investors, the key will be to monitor the project's progress against milestones, the uptake of broadband services once operational and the broader market's valuation of Telesat's equity, particularly as the space broadband sector evolves.
The strategic significance of the Telesat Lightspeed project within the space industry cannot be overstated. As a global broadband satellite constellation in low earth orbit, it positions Telesat at the forefront of the 'New Space Economy'. The project's innovative nature, underscored by its potential to disrupt the current broadband market, is noteworthy. The GoC's investment reflects a broader trend of governmental bodies supporting national champions in the space race, recognizing the strategic importance of space technology in economic and national security terms. The emphasis on bridging the global digital divide suggests that Telesat is targeting not just developed markets but also emerging economies, where broadband access is limited. This has implications for the competitive landscape, as Telesat will be up against other private players like SpaceX's Starlink and Amazon's Project Kuiper. The long-term success of Telesat Lightspeed will hinge on its ability to deliver reliable services at competitive prices and to scale its customer base globally. Stakeholders should keep an eye on Telesat's market penetration strategies and partnerships, as these will be critical in achieving a sustainable competitive advantage.
Government of Canada to receive warrants for
OTTAWA, April 01, 2024 (GLOBE NEWSWIRE) -- Telesat (NASDAQ and TSX: TSAT), one of the world’s largest and most innovative satellite operators, announced that on March 28, 2024, Telesat received a letter from Canada’s Minister of Innovation, Science and Industry regarding an investment in Telesat Lightspeed. The letter states that, following several months of negotiations between Telesat and federal officials, the Government of Canada (GoC) is prepared to invest C
The loan will carry a floating interest rate that is
“Telesat Lightspeed is a highly innovative and disruptive global broadband network and the largest space program in Canada’s long and distinguished history as a space faring nation,” said Dan Goldberg, Telesat’s President and CEO. “I am delighted with the engagement we have had with the Government of Canada on this flagship program, which will help bridge the global digital divide, create and sustain thousands of high-quality jobs in Canada, spur domestic innovation, investment and exports, and ensure that Canada is at the forefront of the rapidly growing New Space Economy. The Government of Canada has been a strong supporter of the Telesat Lightspeed program and we applaud their leadership and foresight.”
Goldberg added: “We estimate that, in addition to the roughly US
The GoC investment is subject to certain conditions, including the entry of definitive documentation with the GoC and Telesat’s other financing sources to the GoC’s satisfaction.
About Telesat:
Backed by a legacy of engineering excellence, reliability and industry-leading customer service, Telesat (NASDAQ and TSX: TSAT) is one of the largest and most innovative global satellite operators. Telesat works collaboratively with its customers to deliver critical connectivity solutions that tackle the world’s most complex communications challenges, providing powerful advantages that improve their operations and drive profitable growth.
Continuously innovating to meet the connectivity demands of the future, Telesat Lightspeed, the company’s Low Earth Orbit (LEO) satellite network, will be the first and only LEO network optimized to meet the rigorous requirements of telecom, government, maritime and aeronautical customers. Telesat Lightspeed will redefine global satellite connectivity with ubiquitous, affordable, high-capacity links with fibre-like speeds. For updates on Telesat, follow us @Telesat on X, LinkedIn, or visit www.telesat.com.
Investor Relations Contacts:
| Hugh Harley | Michael Bolitho | ||
| +1 613 748 8424 | +1 613 748 8828 | ||
| ir@telesat.com | ir@telesat.com |
Media Relations Contact:
W2 Communications for Telesat
Telesat@w2comm.com
Forward-Looking Statements Safe Harbor
This press release contains statements that are not based on historical fact, including the expected financing of Telesat Lightspeed, and are “forward-looking statements’’ within the meaning of the Private Securities Litigation Reform Act of 1995 and Canadian securities laws. When used herein, statements which are not historical in nature, or which contain the words “will,” “may,” “prepared to,” “estimate”, “opportunity,” “subject to” or similar expressions, are forward-looking statements. Actual results may differ materially from the expectations expressed or implied in the forward-looking statements as a result of known and unknown risks and uncertainties. All statements made in this release are made only as of the date set forth at the beginning of this release. Telesat undertakes no obligation to update the information made in this release in the event facts or circumstances subsequently change after the date of this release.
These forward-looking statements are based on Telesat’s current expectations and are subject to a number of risks, uncertainties and assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond Telesat control, are difficult to predict, and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Known risks and uncertainties include but are not limited to Telesat’s ability to enter into definitive funding agreements with the GoC, which agreements, if entered into, may differ materially from the terms herein, Telesat’s ability to enter into definitive agreements with its other financing sources, and to meet the funding conditions of those agreements. The foregoing list of important factors is not exhaustive. Investors should review the other risk factors discussed herein and in Telesat’s annual report on Form 20-F for the year ended December 31, 2023, that was filed on March 28, 2024, and its 6-K that was filed on March 28, 2024, with the United States Securities and Exchange Commission (SEC) and the Canadian securities regulatory authorities at the System for Electronic Document Analysis and Retrieval (SEDAR+), and may be accessed on the SEC’s website at www.sec.gov and SEDAR’s website at www.sedarplus.ca.
FAQ
What is the investment amount from the Government of Canada for Telesat Lightspeed?
What percentage of common shares will the Government of Canada receive based on the equity valuation of Telesat LEO?
What is the interest rate on the loan provided by the Government of Canada to Telesat LEO?
How long is the maturity period of the loan from the Government of Canada to Telesat LEO?
What savings are estimated by Telesat in relation to the Telesat Lightspeed program?
