Eutelsat plans €1.35 billion capital raise to fund LEO strategy

Eutelsat Group is planning a €1.35 billion capital increase, consisting of a reserved offering and a rights issue, to bolster its LEO satellite connectivity strategy. The French government, through APE, will be the largest investor, increasing its stake to approximately 30%, with Bharti Space Limited holding 18.7%. The funds will support investments in LEO capabilities and the IRIS² constellation, aiming to reduce net debt to EBITDA to approximately 2.5 by the end of fiscal year 2025-26, as Eutelsat targets the growing LEO business-to-business connectivity market.

Analysis

Eutelsat Group (ETL) has announced a significant €1.35 billion capital increase aimed at reinforcing its financial structure and advancing its strategic pivot towards low Earth orbit (LEO) satellite connectivity. This capital infusion will be executed through a €716 million reserved capital increase priced at €4 per share, reflecting a notable 32% premium to the 30-day average share price, and a subsequent €634 million rights issue. The French government, via its investment arm Agence des Participations de l’Etat (APE), is set to be the anchor investor with a €526.4 million commitment, which will increase its stake to approximately 30% of Eutelsat's capital and voting rights post-completion, alongside Bharti Space Limited holding 18.7%. The proceeds are earmarked to expedite deleveraging, targeting a net debt to EBITDA ratio of approximately 2.5 times by the end of fiscal year 2025-26, and to fund investments in LEO capabilities, including the European Union's IRIS² constellation. Eutelsat is strategically positioning itself to capture growth in the LEO business-to-business connectivity market, which it projects will exceed $2.1 billion in 2025 and grow at an annual rate of 28% through 2029. While the company confirmed its operating vertical revenue outlook for fiscal year 2024-25 to remain at similar levels to the previous year, it anticipates LEO revenues to surge by 50% year-on-year in fiscal year 2025-26, with overall revenues expected to be in line with 2024-25. The completion of this capital raise, subject to shareholder approval anticipated in Q3 of this year and targeted by the end of 2025, signals a transformative phase for the satellite operator, aligning with the strongly positive sentiment indicated for ETL.

Key Decisions for Investors

• Investors should evaluate the dilutive impact of the €1.35 billion capital increase, particularly the rights issue, against the strategic imperative of funding the LEO expansion and the positive signal from the 32% premium on the reserved portion.
• The strong commitment from the French government and Bharti Space Limited provides significant validation for Eutelsat's LEO strategy, but diligent monitoring of execution against the ambitious 28% LEO market growth and the company's projected 50% LEO revenue growth for FY25-26 is crucial.
• Consider the strengthened balance sheet, with a target net debt/EBITDA ratio of approximately 2.5x by FY25-26, as a key benefit potentially de-risking the investment, while also watching for shareholder approval in Q3 this year and subsequent progress on LEO deployment and the IRIS² constellation.