The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Aliv’s $15 million capital raising has been more than three times’ oversubscribed with a full working week left before closing, its advisers have revealed.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, on Friday told Tribune Business that the second mobile operator had already raised $49 million from institutional and high net worth investors.

He attributed the preference share offering’s success to greater investor comfort with Aliv, given that it is now in its second year of operations, even though the company has failed to meet its revenue margin targets to-date.

“At this stage we have around $49 million,” Mr Anderson confirmed. “We always knew it was going to be oversubscribed; we just weren’t sure of the amount. We knew from reading our investors what the level of interest was, never mind any other broker here. It’s going very well. We expected it. I’m not necessarily surprised, but am very pleased about it.”

He added that RoyalFidelity, which is acting as Aliv’s adviser and placement agent on the offering, has already been in discussions with the company on “what they’re willing to take” in terms of funds raised beyond the $15 million target.

“In our discussions with the company thus far, they’ve indicated a willingness to take what we can raise,” Mr Anderson said. He added that the extra capital could be used to pay-out more expensive financing carrying a higher interest rate, equipment leases and/or further delay Aliv’s need to draw down on bank credit lines that it has yet to use.

The RoyalFidelity chief said the mobile upstart’s operational launch had likely inspired greater capital market confidence in it, even though it is still incurring heavy losses as it acquires market share and completes its network infrastructure build-out.

“It’s the year after Aliv first went to market,” Mr Anderson told Tribune Business. “People have seen Aliv’s entry into the market, and everyone knows Aliv exists and provides good service.

“People are more comfortable with the company than a year ago. Aliv has become part of the local telco business, and a credible entity. That helps with raising money. It’s still losing money, but there’s a general level of confidence that the company will meet its obligations and is in line with its number of subscribers even if it has not met revenue targets. People are comfortable with Aliv as a company.”

While Aliv’s drive to win market share has secured over 100,000 subscribers or around one-third of the Bahamian market, the documents for the $15 million issue revealed that margins are around “eight months” behind forecast due to lower-than-expected revenue per customer (ARPU).

“Over 100,000 Bahamians have already switched to Aliv as active subscribers, on plan with original forecasts when the company was first launched,” the documents revealed. “ARPU is lower than expected in the original plan at this time, but is growing nicely towards those original targets being about eight months behind plan.”

While customer volumes are on target, the delayed launch of mobile number portability - which allows Bahamians to keep their number when switching to Aliv from the Bahamas Telecommunications Company (BTC), or vice versa - was “largely” blamed for the operator missing its original ARPU targets.

The delay meant Aliv’s ability to make inroads into two key consumer segments - the corporate market and ‘late adopters’, who want to make sure the portability system works before they switch - was delayed in comparison to the company’s internal estimates.

Mr Anderson, though, expressed confidence that Aliv will hit its profitability and other financial targets, and told Tribune Business that it would “not be long” before the mobile operator moved into positive cash flow territory.

“If you look at the company’s projected cash flow and have some confidence it will attain it, it will not be long before it gets into positive cash flow,” he told this newspaper. “Their ability to meet repayments will be more than adequate if they get to where they expect to.” Mr Anderson also confirmed that the offering remains open until Friday.

Aliv has financed its operations and network roll-out to-date without taking on traditional commercial bank financing, having relied on shareholder equity injections, vendor financing, a bond and now-preference share issue.

Apart from the $136 million initial financing from its two shareholders, Cable Bahamas and HoldingCo (the Government, which is set to be bought out soon), Aliv has also received $50 million from its primary vendor, Huawei, and the $60 million proceeds from last year’s bond offering. The current $49 million takes its total financing to $295 million.

The documents accompanying the $15 million ‘capital call’ reveal that Aliv “is still targeting at least 47 per cent of market share over the next two years.

ARPU is projected to grow from $36 per subscriber to $52 over the same period, a rise of 44.4 per cent, helping to drive gross margins from 48 per cent to 70 per cent. With quarterly operating expenses held constant at $12-$13 million, earnings before interest, taxation, depreciation and amortisation (EBITDA) are forecast to move ‘into the black’ during the quarter ended on December 31, 2018.

For the 16 months to end-June 2017, Aliv’s audited financial statements show it produced revenue of $12.9 million with negative EBITDA of $44.8 million, compared to initial projections of $23.9 million and negative $30.3 million, respectively.

The operating and net losses for that period were $54.289 million and $55.538 million, respectively, as Aliv goes through its ‘start up’ and growth phases by incurring ‘red ink’.

The preference share issue is a private placement targeted at specific institutional investors and high net worth individuals. Members of the public should not seek to become involved.