GlobalStar Telecommunications Ltd. announced that China Telecom Group Ltd. has agreed to invest $37.5 million to become a full partner in Globalstar L.P.
China Telecom, which provides fixed and wireless services in China, along with China Telecommunications Broadcast Satellite Corp., will retain the sole rights to provide Globalstar’s satellite services in China. Both companies, formerly wholly owned by China’s Ministry of Posts and Telecommunications, are expected to be wholly owned and supervised by China’s newly formed Ministry of Information Industry.
China’s first Globalstar gateway is nearly completed in Beijing, with subsequent gateways to be built in Guangzhou and Lanzhou, where siting and survey work is underway. Including China, Globalstar has service provider agreements in more than 100 countries.
Loral Space & Communications also announced a series of transactions, which once they are finished, will allow the company to increase its ownership in Globalstar to 42 percent, establish a Globalstar service provider fund of $210 million for reinvestment in the Globalstar project through the purchase of Globalstar gateways and user terminals, and add the Soros funds as a significant equity investor in Globalstar.
Loral has offered to purchase, for its own account and for the benefit of the Soros funds, up to 4.2 million of partnership interests in Globalstar from its original service provider partners for $100 per partnership interest (corresponding to $50 per share of GTL stock). This represents 30 percent of each partner’s holdings. Partners accepting the Loral/Soros offer will be required to reinvest half of their proceeds, or up to $210 million aggregate, into the Globalstar project by establishing an escrow account to be used solely to purchase Globalstar gateways and handsets.
Second, the agreement stipulates that Loral will sell to the Soros funds GTL common stock representing half the amount of equivalent GTL shares acquired by Loral in connection with the offer, or up to 4.2 million GTL shares. The Soros fund will acquire GTL stock in lieu of Globalstar interests as a premium to Loral of $8.33 a share above the price paid by Loral. The shares to be purchased by the Soros funds will be restricted and may not be sold without registration. GTL, however, has agreed to provide a shelf-registration for these shares to be effective one year after their purchase.
Loral will fund the purchase of the partnership interests through a public offering, which it expects to initiate shortly, of about $500 million of the company’s common stock, or about 16 million shares, representing less than 5 percent of Loral’s equity capitalization. The company plans to use the balance of the offering to invest in its core businesses and to pursue satellite service opportunities.
“This is a win-win proposition, not only for Loral, but also for the investors who need to take some cash out of their investment,” said Timothy O’Neil, an analyst with SoundView Financial Group Inc. in Stamford, Conn. “The financial crisis in the Pacific Rim region has forced many of the large service providers who have committed to the satellite project to rethink their position.”
The Korea Herald reported earlier this month that South Korean electronics manufacturer Hyundai Electronics Industries has decided to withdraw from the Globalstar consortium in light of a serious cash shortage. The company intends to focus on its core operations. Plans had called for Hyundai to provide certain electronic components for the satellite constellation and to manufacture Globalstar’s follow-on generation of satellites.
