Innovative Financing and Debt Strategies for Private Submarine Cable Project Sponsors
By Andrew D. Lipman, Ulises R. Pin and Paul St. Clair
March 16, 2020
The submarine cable industry continues to expand as entrepreneurs and consortiums continue to find opportunities to create value despite global challenges. Growth in the submarine cable industry is driving innovation in the financing of these systems. This article discusses the most important aspects of financing a submarine cable system including forming a business plan, the different types of structures of financing, the role of debt, corporate governance and other important considerations.
Structuring and negotiating financing is a delicate balancing act and plays a significant role in the timing and success of a submarine cable project. Despite rising challenges, entrepreneurs can continue to secure financing arrangements that drive growth in the industry by diligently considering the factors below.
The global demand for data has never been greater. Successfully building and operating submarine cable systems will be key to meeting this demand. Submarine cable systems carry over 99 percent of all international communications, and remain the primary method of transporting internet traffic because of their speed, capacity and security.
The combined submarine cable industry is expected to increase in value from approximately US $12 billion in 2018 to approximately US $30 billion by 2027. In particular, systems in the Middle East, Africa and the Americas will continue to drive global growth. The industry is experiencing rapid change because of the increase in not only large, consortium-driven transcontinental systems but also new, targeted regional projects led by private entrepreneurs.
At the same time as the demand for connectivity rises, the challenges of constructing a submarine cable project have never been greater. Geopolitics present an obvious hurdle, as the United States, the United Kingdom, and other countries experience a rise in economic nationalism that threatens international cooperation and countries such as China continue to assert political influence over the global economy. Navigating national security, data privacy, cybersecurity and other regulations will continue to be challenge in the coming years.