Upstart cellular provider Public Mobile has locked down a precedent-setting $350-million financing arrangement that will allow the company to expand its network outside of Toronto and Montreal.
Public Mobile has built its existing network using private equity investments, but the new debt will enable it to reach out to Hamilton and Oshawa in the Toronto area, followed by Quebec City, Ottawa, and London. "By the end of this year, we'll have continuous coverage from Hamilton up to Toronto," chief executive officer Alek Krstajic said in an interview this morning.
The financing is provided by Export-Import Bank of China and it gives Public Mobile a fully funded business plan. Unlike most deals priced in U.S. currency, this agreement was made in Canadian dollars, which means Public Mobile does not have to hedge the transaction.
The deal is also backed by export credit insurance from the China Export & Credit Insurance Corporation (SINOSURE) and was signed with the co-operation of ZTE Canada, the Canadian subsidiary of China's ZTE Corporation, which is building the network.
"We're in a little bit of a unique position compared to other new entrants," Mr. Krstajic said. "Both Wind [Mobile]and Mobilicity have been on the street trying to raise money," but Public Mobile has been able to relax for the past year because it already raised "hundreds and hundreds of millions" in private equity. (An exact amount has never been publicly disclosed.)
Public Mobile hired San Francisco based Q Advisors to secure the Chinese agreement over a year long process. "We sort of had the luxury of taking our time," Mr. Krstajic said. "We [already]had the funding we needed to build out Toronto, Montreal, and the rest of our network."
Plus, for the Chinese "there was a lot of getting familiar with how we do things," he added.
The financing's interest rate has not been disclosed but "it's a really low, really competitive interest rate that gives us all kinds of flexibility" and the debt's term is "mid-single digits," Mr. Krstajic said.
He also stressed the benefit of doing the deal in Canadian dollars. "We take away the uncertainty. We know: we borrow $350 [million] we owe $350," he said. "This is a first of its kind and it's a testament to the management team we put together."
Public Mobile, one of Canada's newest cellular providers, plans to offer service from Windsor to Quebec City. Construction of its networks has created 100 jobs in Ontario and Quebec.
The financing is the company's second big announcement this month. Just over a week ago Public Mobile struck a retail partnership with Gateway Newstands, a subway-station and shopping-mall newspaper and magazine vendor. Gateway's 152 Toronto locations have Public Mobile kiosks where customers can buy phones and pay their bills.
Since December, Canada's cellular service industry has been shaken up by new entrants Public Mobile, Wind Mobile, and Mobilicity. Even more expansion is expected as cable companies such as Shaw Communications Inc. launch their own cellular networks.
These new additions follow the government's 2007 decision to set aside wireless spectrum licences for new players. These licences were snagged by the recent entrants at an auction in 2008. A second wireless spectrum auction is expected in either 2012 or 2013.