Landing stations: financing connectivity for small island economies

A submarine cable landing station is a small building, a power feed, a conduit to the beach and a set of rights. The building costs little. The rights cost everything. A landing licence in a small island jurisdiction is granted for a defined term, usually fifteen to twenty-five years, and it confers the ability to bring international capacity ashore and to sell it. The firm finances the station and the rights, and never the cable. That distinction sets the credit, the tenor and the security package.

The firm is already domiciled in several economies where this asset sits, among them Cayman, Bermuda, Barbados and Mauritius. Each has a small population, a financial services or tourism economy that depends on connectivity, and a government that treats a second route as infrastructure rather than as a commercial venture. That treatment matters. A jurisdiction with a single route has a point of failure it can name, and a sponsor proposing the second route negotiates from a position the arithmetic supports rather than from a forecast.

The credit is a concession credit. Revenue arrives from long-dated rights of use sold to carriers, from annual maintenance charges, and from short-term capacity sold at a spot rate. The firm underwrites the first two only. Contracted revenue at financial close on the facility written in 2024 covered debt service 1.9 times across the full tenor. Spot capacity revenue was modelled at zero. A financing that needs the spot market to clear is a technology position wearing an infrastructure structure, and it should be priced as one.

Two risks carry the file. The first is renewal. A licence with eleven years to run behind a twelve-year facility is not financeable, so the firm sizes amortisation to end three years inside the licence term. The second is customer concentration, because two or three carriers can account for most contracted revenue. The facility takes an assignment of the carrier contracts, a direct agreement with the licensing authority permitting a lender step-in, and a reserve of six months of debt service.

Construction risk stays with the sponsor. The firm lends after the station is built and the system is in service, at 425 to 550 basis points over the reference rate, with tenors of eight to twelve years. Construction finance in this asset class prices two to three hundred basis points wider and requires an engineering capability the Commercial Finance division does not employ. A lender that cannot read a marine survey should not underwrite one. Refinancing a completed system is a different question and a better one.

The division held one such facility at November 2024, US$22 million drawn against a US$26 million commitment, secured on a station in the Indian Ocean and administered from Port Louis. Two more were in diligence, both in the Caribbean. The asset suits the firm because it is small, specialist and locally licensed, which are the conditions under which competition is thin. Demand for capacity in these economies has compounded at double digits for a decade, and the station takes its share whatever the cable carries.

Published 2024-11-12 by the Commercial Finance division. Research is prepared for eligible counterparties and does not constitute advice.