Some people clearly haven’t lost faith in 3G. All the vendors’ money, and a third of the banks’, has been lent without guarantees from H3G’s parent Hutchison Whampoa. If the venture folds, they will not get it back. It’s still not certain that new entrant 3G operators will make money, but Hutchison’s ability to gain funding is reassuring news for others in its position.
Italian 3G mobile operator H3G has raised E4.2 billion in bank and vendor financing.
Despite fears that funding would prove elusive, new entrant Italian 3G mobile operator H3G has managed to secure E4.2 billion to build its network. E3.2 billion will come from a consortium of 11 banks, with E1 billion provided by equipment vendors.
The banks, including ABN Amro, Deutsche Bank, HSBC, JP Morgan, The Royal Bank of Scotland and Societe Generale, have agreed a 9.75 year finance agreement in two separate tranches. They will lend E2.2 billion with recourse to H3G’s parent, Hong Kong conglomerate Hutchison Whampoa. Given HW’s financial strength, the banks can consider this money as safe.
However, they will also lend E1 billion on a non-recourse basis, meaning that if H3G Italy folds they risk losing their money. The equipment vendors’ financing is also non-recourse, on the same terms. Although the company has not specified who these vendors are, H3G’s two main infrastructure suppliers – NEC and Siemens – are likely to be involved. This is a major vote of confidence in H3G, and has surprised some in the industry.
H3G, which paid E3.25 billion for its mobile license, plans to make its money back by offering users high-speed mobile Internet and telecoms services. However, it will face a challenge. Unlike its rivals in Italy, it has to face the task of building both a mobile network and a customer base from scratch.
Datamonitor estimates it will take new entrant 3G operators seven years from launch to break even, if nothing goes badly wrong. This leaves H3G’s investors likely, but by no means certain, to see a return on their investment – so the banks’ move, sharing the risk with each other and HW, seems wise.
The network suppliers, meanwhile, are lending H3G money to buy their equipment. This keeps sales up despite the downturn – but as Lucent has found out, the consequences can be serious if too many customers go under. There is still a chance that H3G’s vendors will regret not demanding recourse to HW’s deep pockets.