Pipe's submarine cable: it's all good news

Stuart Corner
Wednesday, 09 July 2008 06:04

Business IT - Networking

Pipe Networks says it is ahead of schedule on several key aspects of its submarine cable to Guam; there is the possibility of a number of additional significant capacity sales; and the system could end up being worth more than its build cost.

CEO and managing director, Bevan Slattery said: "The company is currently in discussions with a number of new parties for additional significant capacity sales. This interest, received from a wide spectrum of users for access to well-priced international capacity, has been very strong and we continue to work hard to convert these opportunities to formal long-term contracts."

Pipe has also announced that all survey works on the cable route has been completed with no disruption; that permits to operate and lay the submarine cable in various jurisdictions (Australia, Papua New Guinea and the USA) are expected to be granted two months ahead of the original schedule and that construction of the Australian landing station is ahead of schedule and is expected to be fully commissioned by the end of July 2008.

It adds that "Pipe Networks' use of fixed-price contracting has insulated the company from significant price rises in shipping, raw material and fuel costs that have emerged since the announcement of PPC-1 in January this year...The company has also benefited significantly from the appreciation of the Australian dollar against the US dollar in recent months.

"Due to these currency benefits and recent cost increases in the submarine cable industry, the company estimates that replacement cost of the PPC-1 cable system would now be 20-25 percent higher than its currently contracted construction cost. Accordingly, it is estimated that the replaceable asset value of the PPC-1 cable system alone may exceed $170m when completed in 2009."

Pipe plans to review the valuation of PPC-1 on completion and says that such a revaluation would likely have "a significant positive impact on net tangible asset backing."

Pipe is finalising construction financing terms with a major banking group and says it expects to agree construction finance arrangements by the end of the current quarter, but that both the term (now expected to be less than 12 months) and maximum facility amount will be less than assumed in previous guidance.