Pipe Networks' sub cable to go ahead

Stuart Corner
Monday, 14 January 2008 05:01

Business IT - Networking

Pipe Networks says it has signed sufficient contracts with keystone customers for the board to approve the construction of its 6,900km, $200m undersea cable, known as PPC-1 linking Sydney to Guam with a spur connecting Madang, Papua New Guinea. The system, previously dubbed Project Runway, will be a two pair cable with a maximum bandwidth of 1.92Tbps. It will be built with branching units offshore from Sydney and the Gold Coast to allow interconnection with future cables. Pipe announced in August that the system would be build by Tyco Telecommunications.

The company has named VSNL, Telikom PNG, iiNet, Internode and Primus as initial customers but says there are contracts with other domestic and international customers and counterparties that cannot be disclosed due to confidentiality restrictions.

Pipe Networks CEO, Bevan Slattery said: "Foundation customers of PPC-1 are the real champions of competition...They wanted a change from the same old overpriced bandwidth product available for the past eight years. We all realised that this is the last chance to break the Gang-of-Four's stranglehold on international capacity pricing into Australia."

Pipe Networks expects that, with direct investment and with these customer contracts, the project will achieve positive cash recovery of the investment within three to five years. and it expects that the cable ownership vehicle will be debt free within six months of the commissioning of PPC-1, scheduled for the second quarter of 2009.

Pipe named the ANZ Bank as financial advisor to Project Runway in March 2007, but has not identified how the capital required to build the system wil be provided.

According to a statement released to the ASX, "The [Pipe Networks'] board is also of the view that Pipe Networks has no immediate requirement for capital raising. As at 31 December, 2007 Pipe Networks had a net cash position of $3m, with an undrawn debt facility of more than $20m. The company expects to further negotiate an extension of its existing debt facility in light of the company's strong financial growth during the preceding 12 months. Further funding arrangements are in the process of being finalised, including project finance."

Ownership of PPC-1 will be split between a number of indirectly wholly-owned subsidiaries of the ASX-listed entity, Pipe Networks. PIPE International (Australia) Pty Ltd will hold the Australian-based assets; PPC 1 (US) Inc, a Delaware corporation will hold the Guam landing station assets; and PPC 1 Limited, a Bermuda corporation will own the international assets. Pipe International will own 100 percent of PPC 1 which will in turn own 100 percent of PPC 1 (US).