Page 17 - Sphere No.8 (Mar 2003)

S

PHERE

15

which was determined to kill the 3G

story,” Woodward recalled. “The way to

do this was not by competing in the

uncontrollable PR space but by

communicating the facts, issues and risks

properly through the due diligence

process. Luckily, credit committees read

due diligence reports as well as the front

page of the broadsheets. Armed with the

facts, the lead arrangers were very

resilient under the barrage of negativity.”

ITALY: Full Funding for the Future

RIDING ON THE SUCCESS IN THE UK,

H3G Italy replicated the fund-raising

exercise with the successful conclusion

in June 2002 of a

E

5.2 billion (US$5.5

billion) bank and vendor finance facility for

the Italian operations.

This round of financing encountered a

more hostile and cynical funding market as

many of Hutchison’s 3G competitors had

run into financing or operating difficulties.

H3G’s approach, therefore, had to be

flexible if it was to raise the required

E

5.2

huge profits. But the company is more likely to end up as 3G’s

biggest early casualty.”

3G V

ISION

Far from being an early casualty,Hutchison has every expectation

that it will turn out to be right.While others have had second

thoughts, choosing to sit on the sidelines, the Group has been the

notable exception, powering ahead into uncharted territory and

fuelled by a healthy bank balance. Perversely, the financial barriers

to entry for new entrants and the demise of incumbent rivals has

served only to strengthen the company’s position – to the extent

that by the second half of 2002 Hutchison 3G was the last

remaining 3G-only player in Europe.

Surveying the carnage, the sceptics have tended to lump

financial concerns together with doubts over unproven

technology. But Hutchison is fully funded and the company is

effectively close to mastering most – if not all – of the nuts and

bolts of making it all work.

This is not the first time Hutchison has disregarded the

sceptics.When the Group launched Orange in the UK in 1994

into what critics regarded as an already-cornered market, analysts

and journalists quipped that the company was a lemon, that it

would be squeezed and crushed by its incumbent competitors

and that the venture would turn sour and ultimately fail. But

Orange sparked imaginations and became a runaway success. By

1999 the brand had

seized a 20% market share

and Hutchison sold its stake

for a handsome profit.

In retrospect, the timing was

perfect. Hutchison had simultaneously

exited at the top of the 2G market and locked in

a dividend that would help fund its move to the next

generation.

The prevailing sentiment towards the 3G market

opportunity is therefore something of a

déjà vu

scenario for

Hutchison, reminiscent of those early days of Orange.

Throughout the current downturn, Hutchison has been the one

company consistently bucking the trend and “bravely going

where others fear to tread.”

By any measure, financing and building the 3 network from

(continued on p.23)

billion. Lenders to 3G businesses were

now demanding greater sponsor support

in return for the provision of funding.

HWL was willing and able to provide

both equity and subordinated debt as

well as its credit support to make the

financing work. Ultimately, 15 banks from

Italy, Europe, the US and China

underwrote the transaction and were

subsequently supported by banks from

Italy and Sweden.

In the process, H3G Italy achieved a

number of firsts. It was the world’s first

fully funded project financing for a 3G

telecommunications business and the first

new 3G project to fund itself with ten-

year term financing.The financing not only

included banks and vendors (Ericsson,

Siemens and NEC came up with

E

1 billion

between them), but also the Swedish and

German export credit agencies – the first

time any government agencies had

financed 3G project risk.

The complexity and structure of the

financing was widely applauded by the

financial community and was named the

“Telecoms Deal of the Year 2002”

awarded by

Project Finance International

Magazine

. In presenting the award, the

magazine remarked:“It is testament to the

perceived strength of sponsor quality that

Hutchison’s business plan was even

looked at by the banks in the first place,

given the turn in market sentiment against

telecoms in general and 3G in particular.”

“We could not have raised the finance

without a sponsor such as Hutchison,”

said Giorgio Moroni, CFO for H3G in

Milan. “What was remarkable for the

Italian business community to see was

that Hutchison was willing to make such a

strong commitment to support this

business in Italy, a country it had never

invested in before.”

Deputy Group Treasurer John Mulcahy

concurred: “The Italian team did a great

job in convincing banks to support the

transaction on its merits. A number of the

underwriters had no prior banking

relationships with the Hutchison Group,

This financing did a lot to expand

appreciation of the Hutchison Group’s

strengths to the European financial

community.”