John Linton
We had a meeting with one of our banks late last week to discuss their 'almost final' ofer of borrowing facilities which we enquired about late last year when we were considering the best ways of acquiring either/or our own wireless or fibre network, an owned rather than leased office floor space or even leasing one or more large capital equipment purchases we were/are considering. We have operated Exetel, to date, with no overdraft or any other kind of borrowings and have paid 'cash' for all of our equipment as well as providing Telstra with a $A1 million bank guarantee.
We can continue on in this way for the foreseeable future as our one major capital purchase has been offered under unbelievably attractive vendor finance terms and, looking at the current economic outlook with the very high likelihood of continually increasing interest rates and probable liquidity issues facing virtually all the lenders, this is not the best time to borrow money according to all conventional thinking. Most people that I talk with say make the most of the fact that you're fortunate enough to have no finance or bank debt and see what happens over the next 6 - 12 months.
I made these points to our bank visitors who were then at great pains to point out how advantageous it would be to borrow money to expand when most competitors would be under pressure to cut back their spending and take a more conservative view of 'investing/planning' growth in a tough outlook period.
I was quietly amused that I had reached the time of life where I was the most conservative and cautious person in the room acting like the most negative of the financial controllers I had ever had to deal with in past positions where I would always be the high risk and damn the consequences proponent in any investment scenario.
I was thinking about how to make this decision regarding infrastructure investment earlier this morning and have not been able to even find a scenario in which I was either comfortable with or which posed no downside - it all continues to look far to uncertain to me. As far as I can see, and I've mulled this investment over for almost three months now, all I can see is high risk with a very uncertain pay back period. With the 'magic' of spreadsheets I have been able to model and re-model the investments needed in all sorts of ways and every way I try results in uncertainty at best and financial disaster in too many circumstances.
Before I met with the bank I had come up with only way that I would recommend Exetel would take the risk, at this very difficult time, of investing the $A4 - 5 million it would take to build a realistic infrastructure in Sydney, Brisbane and Melbourne which is to share the cost and the infrastructure with a non-competing other enterprise. If that becomes possible then the 'math' becomes a 'slam dunk' - it pays for itself from month one and will pay back the investment in less than 18 months - well inside all the 'bad thing scenarios' I can currently think of.
So like all really tough decisions it can be made incredibly simple - depending on your view of things. My reservations about all 'partnership' deals will make it hard to actually go ahead but so many of the projects we are currently looking at only make 'risk' sense if the risk is shared with someone else.
I have made some tentative approaches to one Hong Kong and one Singapore based company who have an interest in investing in an IP distribution network in Australia and will visit both of those companies in the middle of February. Of course, the most likely result is that those, much bigger than Exetel, companies will decide to build such infrastructures by themselves and are simply expressing interest in talking with Exetel as part of their investigations of how to do this in Australia - that wouldn't surprise me at all. But, it does allow me to continue to consider this option because commercially it makes sense and it would eliminate the financial risk.
As both the banks we deal with seem quite anxious to provide us with loan facilities it seems a shame to have to disappoint them.