Public Mobile’s China Connection

by Jordan Richardson on June 25, 2010

In a bid to expand its network beyond Montreal and Toronto, upstart telecom company Public Mobile is locking down a $350 million financing arrangement.

To date, Public Mobile has used only private equity investments to fuel its network. But this next phase of expansion requires more capital and, as such, Public Mobile has turned to the Chinese government-run Export-Import Bank of China. This gives Public Mobile a fully funded business plan and, unlike many other similar plans, was made in Canadian dollars.

“By the end of this year, we’ll have continuous coverage from Hamilton up to Toronto,” chief executive officer Alek Krstajic said.

Export credit insurance also backs the deal. Provided by the China Export and Credit Insurance Corporation (SINOSURE) and signed with Canada’s subsidiary of China’s ZTE Corporation, the deal appears backed to the hilt to ensure maximum return on investment for Public Mobile.

San Francisco investment bank Q Advisors secured the agreement with the Chinese companies. The deal was apparently in the works for about a year and Krstajic stated that the luxury of time was a big factor in getting things squared away properly. With the significant chunk of investment capital, Public Mobile can now hope to expand its network out to Hamilton and Oshawa in the Toronto area and out to Quebec City, Ottawa and London.

The term of the debt to the Chinese companies is said to be in the low single digits and the interest rate is, according to Krstajic, “really, really low.”

The loan from the Chinese companies will combine with the private equity investment capital Public Mobile already possesses to pay down the entire transaction for the networks. Construction has already generated 100 high tech jobs in Quebec, Public Mobile says.

The deal has been greeted by more than a few raised eyebrows, especially with recent news about apparent Chinese tampering with government officials having come to light after CSIS’s Richard Fadden revealed and then backed away from statements about possible collusion. The notion of a Canadian cell phone company taking such an extensive amount of money from a Chinese company might not sit well.

On the other hand, Canada’s beleaguered cell phone sector has made it clear that options are few and far between in terms of competing with the big boys. Without options like a cellular co-op and other public-led initiatives to really change the power structure, Canada’s telecom companies will continue to seek capital wherever they may find it.

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