The request from the Public Sector Pension Investment Board, one of Canada’s largest asset managers, is now sitting in the hands of co-owner Loral Space & Communications, which disclosed the request to shareholders in a regulatory filing last month.
“There are a number of steps that will have to be completed before the IPO can take place, including a renegotiation of the shareholders’ agreement,” said Loral CEO Michael Targoff in an e-mailed statement to OBJ, giving no indication of a timeline.
Loral shares are currently traded on the Nasdaq. The company – which owns 64 per cent of Telesat – said it would not sell its shares of the Ottawa-based firm, even if an IPO occurred.
Michael Bolitho, Telesat’s director of treasury and risk management, said the shareholders’ agreement provided for either Loral or PSP to request an IPO. (Loral added that this provision took effect on Oct. 31, 2011, four years after the co-owners bought Telesat.)
“Telesat is obligated to look at it, and we’re looking at it,” Mr. Bolitho said, declining to comment further.
PSP declined comment, saying it does not speak about individual investments.
Telesat, an Ottawa firm that focuses on satellite communications, has been the subject of a flurry of ownership discussions in recent years.
Loral is a satellite communications company, while PSP manages the pension plans of the Canadian public service, the RCMP and similar groups on behalf of the federal government.
PSP and Loral co-acquired Telesat for $3.25 billion in 2007; the dual ownership structure was needed to meet Canadian ownership rules.
But talk of changing the ownership brewed as early as November 2010, when Telesat vice-president Paul Bush told OBJ that an IPO “was always in the plans.”
That same month, a Bloomberg report citing unnamed sources said Telesat had hired JPMorgan Chase & Co., Morgan Stanley and Credit Suisse Group AG to find prospective buyers. Telesat’s owners were reportedly seeking $6 billion for a sale.
In August 2011, Telesat CEO Dan Goldberg told analysts in a conference call that the company had received offers, without naming the parties and amounts. He added that none would be accepted. When asked by an analyst if the firm would pursue an IPO, he said Telesat was instead focusing on a recapitalization.
After downsizing the scope of the refinancing due to difficult market conditions, Telesat announced in March 2012 details of a US$2.55-billion credit agreement, as well as $705 million in payments to the owners, some executives and employees. Mr. Goldberg declined to disclose the individual amounts in a conference call with analysts.
In regulatory filings, Loral stated the shareholders received C$656.5 million, while Loral itself received $420 million.
Meanwhile, Telesat has been pursuing high-profile projects in 2012, including the launch of a new satellite and a proposed $160-million communications infrastructure public-private partnership arrangement for Canada’s north.
After so many ownership negotiations between Telesat, Loral and PSP, there’s “a lot of context we just can’t know,” said Elisabeth Preston, a managing partner in law firm McMillan’s Ottawa office. While her practice focuses on the defence and aerospace markets, she said she is not directly familiar with Telesat as a company.
“There’s four years of history of (the owners) working together, especially in the past few years, engaging with others to find a buyer. We don’t know who was at the table and what the potential value was.”
As such, she said it would be difficult to read much into the motivations of PSP for requesting the public offering. She speculated it might be because PSP wants to close off the investment.
In its 2012 annual report, PSP noted it holds investments in its private equity portfolio – under which Telesat falls – for an average of five to 10 years.
Oct. 31, 2012 marks the five-year anniversary of Loral and PSP’s co-ownership of Telesat.
PSP’s investment holdings - asset mix as of March 31, 2012:
Foreign equity: 28.6%
Real return assets: 23.2%
Canadian equity: 22.4%
Nominal fixed income: 15.8%
Private equity: 10%
Total net assets: $64.5 billion
Source: Public Sector Pension Investment Board 2012 Annual Report
PSP’s private equity portfolio
- Fiscal 2012 net assets: $6.4 billion (up 12% from 2011)
- Total investment income, excluding investment costs: $453 million ($261 million in funds, $192 million in direct and co-investments)
- Rate of return: 7.7%
Notes:
- PSP increased its private equity allocation in fiscal 2012, primarily through co-acquiring Texas-based Kinetic Concepts Inc. in a transaction valued at US$6.3 billion.
- Fundraising challenges in the United States and the overall European economy are pegged as the primary obstacles to growth in private equity.
- Telesat’s and China Network Systems’ individual growth in earnings and revenue were specifically identified as the main drivers behind the investment segment growth of 2012.
Source: Public Sector Pension Investment Board 2012 Annual Report
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