Investors fret over Eutelsat and SES finances as Starlink threat looms

{"text":[[{"start":10.8,"text":"Investors are growing increasingly concerned about the finances of two of Europe’s largest satellite operators as the rapid rise of Elon Musk’s Starlink deepens the pressure on the continent’s ailing incumbents. "}],[{"start":23.65,"text":"The cost of buying insurance against France’s Eutelsat and SES of Luxembourg defaulting on their bonds has soared to record highs, as investors fear the two will struggle to repay their debts, which together amount to about €7bn. "}],[{"start":39.879999999999995,"text":"Legacy satellite operators have struggled to adapt to the rise of new communication services from low Earth orbit, as their traditional, higher- orbit broadcasting businesses decline. "}],[{"start":52.339999999999996,"text":"In just five years Musk has expanded Starlink to more than 6,000 satellites, more than 60 per cent of the spacecraft in orbit, serving some 130 countries. "},{"start":63.718999999999994,"text":"His company is also increasingly taking market share in the lucrative market for in-flight connectivity with airlines, including beating Eutelsat to win a contract with Air France. "}],[{"start":75.37,"text":"Pressure on Eutelsat and SES is expected to intensify when Amazon’s Project Kuiper launches its broadband satellite service, expected later this year. "}],[{"start":86.27000000000001,"text":"“Europe’s incumbents are in danger of being left behind,” said one high-yield credit investor who has recently sold out of Eutelsat’s bonds, citing Starlink’s technological advances. "}],[{"start":98.81,"text":"Musk’s relentless expansion of Starlink, alongside with the European duo’s sluggish response to the new low Earth orbit challenge, have driven down their share prices to record lows. "}],[{"start":110.41,"text":"In response to the emerging competition, Eutelsat and SES have sought to consolidate, with Eutelsat snapping up the UK’s OneWeb in 2022 and SES buying Intelsat for $3.1bn last year. "}],[{"start":126.25,"text":"Credit investors have bought credit default swaps, derivatives that act like insurance contracts that pay out if a company reneges on its debts. "}],[{"start":null,"text":"

"}],[{"start":136.15,"text":"Spreads on five-year CDS on Eutelsat, which has debts of almost €2bn, have climbed more than 800 basis points to 1,220bp in the past six months. "},{"start":149.442,"text":"That implies that investors now give Eutelsat a 65 per cent chance of defaulting on its bonds. "}],[{"start":156.68,"text":"The equivalent CDS spreads for SES, which has about €5bn worth of debt made up mostly of euro-denominated bonds, has also hit an all-time high in recent weeks. "},{"start":168.784,"text":"On Thursday, it touched 309bp compared with 100bp at the start of 2024, giving it a probability of default of 22 per cent. "}],[{"start":180.59,"text":"Eutelsat said its low Earth orbit product “is a highly competitive global offering” and said it was “uniquely positioned” in the market. "},{"start":189.244,"text":"SES did not respond to a request for comment. "}],[{"start":193.14600000000002,"text":"Last month, Moody’s downgraded Eutelsat’s credit rating by two notches from Ba3 to B2, plunging it further into junk territory. "}],[{"start":202.68,"text":"The credit rating agency blamed the cut on Eutelsat’s takeover of the start- up OneWeb, which has far underperformed its own predictions. "},{"start":211.672,"text":"Last year Eutelsat said OneWeb’s revenues were barely half the target forecast at the time of the takeover, and Eutelsat downgraded its earnings outlook up to 2025. "}],[{"start":223.86,"text":"Ernesto Bisagno, an analyst at Moody’s, said the downgrade in part reflected the lower earnings forecasts, increased competition “and the significant refinancing needs in 2027 at a time when its cost of funding has increased materially”. "}],[{"start":240.71,"text":"SES’s debt is rated at BBB at Fitch and Baa3 at Moody’s, placing it just inside of investment-grade territory. "}],[{"start":249.91,"text":"“It’s just too hard to tell how that industry will play out with Starlink’s advances . . . Visibility of that threat is troublesome,” said another high-yield bond investor. "}],[{"start":259.90999999999997,"text":"In December, the EU signed a €10.6bn deal to develop a European satellite network, with 61 per cent funded publicly and the rest coming from the SpaceRise industrial consortium, led by Eutelsat, SES and Spanish operator Hispasat. "}],[{"start":278.78,"text":"Eutelsat is counting on the project, called Iris², to help fund the development of its next generation of OneWeb satellites and is the project’s single biggest private sector investor, committing €2bn. "},{"start":293.034,"text":"The project will not be ready to operate until 2030 at the earliest. "}],[{"start":298.65999999999997,"text":"Despite Europe’s attempt to boost its own industry, Italy’s government, led by Giorgia Meloni, has entered preliminary talks with Musk’s SpaceX over a potential deal worth up to €1.5bn to provide secure military communications. "}],[{"start":315.4,"text":"The deal could involve using Starlink services for “encrypted data communications”, according to the Italian government. "}],[{"start":322.52,"text":""}]],"url":"https://creatives.ftmailbox.cn/album/191847-1738943056.mp3"}