Esat raises £27 million to help fund development of its business network

ESAT Telecom Group has raised £27 million from a number of international investors to help develop its new GSM mobile phone Network and expand its existing telephone business.

Esat has placed new shares with five US based companies four new investors and Advent International which owned a 31.5 per cent stake in Esat Telecom Group before the issue of new shares in a deal which Esat says values the Irish phone company at £56 million. Each of the five investors is thought to have put about £5.4 million into the deal.

The new US investors now control almost 40 per cent of Esat Telecom Group, while the group chairman and chief executive, Mr Denis O'Brien, has diluted his share holding to 29.44 per cent.

Prior to the deal, Esat was split from its parent company, Communicorp, which now focuses on its radio interests. Communicorp owns the Dublin independent radio station Classic Hits 98FM and also has radio investments in a number of other European countries.

The new investors in the Esat Group are the George Soros vehicle, Soros Capital Metropolitan Life Insurance John Hancock Mutual Life Insurance and the merchant banking division of CS First Boston Corporation of New York.

Advent International, the US venture capital fund, which paid $10 million for a 35 per cent stake in Communicorp two years ago, subscribed to the new placing and, as part of the new deal, Advent's stake in Esat Telecom was diluted slightly to 27.21 per cent.

The new investors have committed to the company for at least five years, after which they may sell their stake to other shareholders, or an outside party. Floating the company on the stock market would also be "an option", according to Mr O'Brien.

To fund subsequent growths Esat Telecom may also have a second institutional offering in the early part of next year. "This is tier three capital for us and there will be tier four and five," Mr O'Brien said.

Between £15 million and £18 million of the new funds will be invested in Esat Digifone, in which Esat has a 40 per cent stake. Esat Digifone won the competition for Ireland's second mobile phone licence, and plans to begin its service in the "last quarter" of this year.

The remaining capital will be used to develop Esat Telecom, which competes with Telecom Eireann for international and long distance business calls. Esat Telecom now has more than 1,700 corporate customers and its business is expanding by 15 per cent a month, according to O'Brien.

He said the additional capital would be used to upgrade its network, build new exchanges and introduce new services. "We're positioning the business to be a fully fledged competitor to Telecom Eireann in all areas."

Mr O'Brien said initially the company had wanted to raise £20 million but when the placing was oversubscribed, the sum involved was raised to £27 million. The quality of the US investors "would be very beneficial for the company going forward", he added. The funding was structured and arranged by CS First Boston Corp, which has a worldwide operation providing banking services to the telecommunications industry, according to Mr O'Brien.

The new mobile phone network should cost up to £120 million to develop and Esat Digifone's shareholders Esat Telecom Group, the Norwegian phone company, Telenor, and Mr Dermot Desmond's International Investment and Underwriting have already spent about £65 million.

The exact start up costs, which could be as low as £100 million, would depend on the number of customers attracted to the network in its early period. "If you get substantial numbers of customers, then more capital is needed."

Esat Digifone says that by the end of the decade there should be 500,000 Irish mobile phone users and it hopes to capture about 50 per cent of the total market. This should produce annual turnover of about £250 million, according to Mr O'Brien.

He said that Esat Digifone would have coverage of 80 per cent of the State "on day one" and that this would grow to 95 per cent within six months. The planning permission process for Esat's new masts was on track and the company was continuing negotiations with ESB, RTE, Telecom Eireann and others to share possible sites.