The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Advisers to the Bahamas’ second mobile operator yesterday predicted its just-launched $30 million bond offering “will be well oversubscribed”, amid expectations it will start generating a profit by 2019.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that Aliv “could end up with between $40-$50 million” from its capital raising - an outcome that would leave the offering 33-66 per cent oversubscribed.

“Our sense is it will be oversubscribed; it’s just a case of how much,” he said. “The company has indicated their willingness to accept more than the $30 million, but they’ve not said how much. Chances are we could end up between $40-$50 million.”

Aliv’s bond raising launched yesterday, and Mr Anderson added: “I think it’s going reasonably well, and I expect we’ll be well oversubscribed from it.”

The RoyalFidelity president based his confidence on the investment bank’s ‘soundings’ from institutional and high net worth investors specifically targeted to participate in the bond issue, and the response from the 60-70 persons who attended Aliv’s pre-offering presentation on Tuesday night.

A four-page term sheet issued to investors, which was obtained separately by Tribune Business, discloses that Aliv “is targeting at least 47 per cent of market share over the next three years” as it bids to erode the Bahamas Telecommunications Company’s (BTC) market dominance.

Mr Anderson yesterday confirmed this 2019 goal, adding that the market share target matched what Digicel and other new entrants had achieved in other Caribbean territories when their mobile markets liberalised. Aliv’s senior executives all previously held posts at Digicel.

“Their target is very consistent with what’s happened in other markets in the Caribbean where Cable & Wireless Communications was the incumbent, and lost market share to Digicel or a new entrant,” Mr Anderson explained.

“Thirty to 50 per cent market share, it’s always in that range. There’s no reason to think the Bahamas will be any different.”

Having ended BTC’s long-standing mobile monopoly, the Aliv term sheet shows it was targeting 50,000 subscribers by end-March 2017 - a target its executives say they have already achieved.

The new entrant is now targeting a gross subscriber figure of 73,662 by end-June 2017, an almost 50 per cent increase from where it is now, with average subscriber numbers projected to be 61,831.

However, Aliv’s subscriber claims have already provoked a sharp reaction from BTC, which has served notice it will not take competition lying down, and intends to push back hard via creative consumer plans of its own.

Leon Williams, its chief executive, this week said it was impossible for Aliv’s claimed 45,000-50,000 subscribers to equate to one-quarter of the market, given that the incumbent operator has more than 320,000 customers.

This equates to an Aliv market share of between 14-15.6 per cent, and Mr Williams said BTC’s own research suggested that 90 per cent of those 45,000-50,000 Aliv subscribers were also its customers - they currently own both Aliv and BTC handsets.

The ultimate beneficiaries of this intensifying rivalry will be Bahamian business and residential consumers, as the competition between BTC and Aliv should result in lower prices and improved consumer choice and services.

Still, Aliv’s term sheet is forecasting that it will increase gross subscriber numbers by two-thirds, or 66 per cent, in the year to end-June 2018, closing at 122,400.

It is also predicting that monthly margins/yields per subscriber, or average revenue per unit (ARPU), will increase from the present $32 to $47 by June 2018 - a rise of 46.9 per cent. It will keep climbing to reach $54 by 2020.

Aliv’s offering document says the relatively high average revenue per subscriber (ARPU) yields in the Bahamas should be especially attractive for investors, as at $48 per month they are higher than the US’s $31, and just below Canada at $49.

“Having previously been dominated by a single player, the liberalisation of the Bahamas’ mobile cellular license provides BeAliv a unique opportunity to make a growth play in the high ARPU value, $232 million (estimated) mobile telecommunications market,” it tells investors.

“Aliv is targeting at least 47 per cent of market share over the next three years that will be driven by increased demand for data.”

The financial projections disclose a more than-tripling of Aliv’s quarterly revenues over the next 15 months, going from $6.536 million in the current quarter to $20.767 million for the three months to end-June 2018.

Over the same period, gross margins are projected to increase from 23 per cent to 72 per cent, with the cost of sales kept below $6 million in each quarter.

With payroll costs kept constant at $2.502 million per quarter through Aliv’s 2018 financial year, and operating expenses below $10 million for each three-month period, Aliv is predicting it will start generating positive quarterly operating income (EBITDA) in the December 2017 quarter.

The new mobile operator’s quarterly capital spending is also forecast to decline from the current $35.84 million to $2.464 million during its 2018 financial year, as Aliv moves closer to completing the build-out of its network infrastructure throughout the Family Islands.

All this adds up to forecasts that Aliv will start to generate a profit in 2019, its third year of operations, shedding start-up losses of $50.267 million and $20.070 million in financial years 2017 and 2018.

The company is forecast to ‘reach the black’ with $3.578 million, and then increase this to $13.243 million and $14.229 million in 2020 and 2021, respectively, as market share reaches 50 per cent for both years.

Mr Anderson said of Aliv: “It’s a start-up but not a start-up. It’s got north of $140 million in capital, and now raising an extra $50 million in debt, but it’s an extremely well-capitalised, operational company.

“It’s a matter of getting subscribers now. This particular entity is up and running, has got 50,000 subscribers, and growing rapidly. It’s a really fast-growing company. The general sense is of a company that has a plan, and is likely to create and carry it out.”

Aliv’s $30 million bond issue is a private placement targeted only at select investors, so members of the Bahamian public should not seek to apply. It will close on March 31.

As revealed by Tribune Business in February, Aliv’s $30 million bond issue will be split into two equal $15 million tranches.

One tranche, with a 10-year term, will carry an interest coupon of 8 per cent. The second tranche, which will have a 15-year maturity term, will carry a dividend of 8.5 per cent to compensate investors for the longer term and extra risk.