The challenge:

MBNS offers satellite pay television services to consumers in Malaysia. Set-top boxes and satellite dishes are installed at the consumer’s premises and the revenue is realised over the life of the equipment. Consumers will typically be bound by a contract for pay television with monthly fees via a commercial package lasting two or more years.

MBNS signed major contracts with its vendors to procure a full range of the latest set-top box technology and content licenses. These contracts were relatively significant and were around US$100m payable over short tenors. Charles Chen, Vice President, Treasury & Strategic Contracts explains “this effectively created a fundamental mismatch between the purchases from these major vendors and the repayment source from our consumers.”

Key objectives were to:

• Match the financing of the equipment with the life of said equipment.

• Improve liquidity and avoid the need to use own funding to make the procurement payments.

• Provide attractive funding options to existing vendors based on the financial strength of MBNS and the client’s goodwill with the bank to strengthen their business relationships with vendors.

• Meet their main KPI objectives to extend payment terms to its vendors and achieve the treatment as desired. This would result in payables to tie up with its subscribers/consumers agreement packages.

• Effectively manage the interest rate risks by incorporating flexibility on interest rate options ie floating and fixed interest rate solutions.

The solution:

The solution was the first of its kind which Deutsche Bank provided to MBNS. It effectively allows the client to expand their payment terms in significant procurement contracts to compliment the revenue stream from the subscribers and receivables usually under commercial packages lasting two or more years.

Deutsche Bank provided a three year account receivable purchase (ARP) solution backed by promissory notes with recourse to Measat Broadcast Networking Systems (MBNS) for the procurement of set-top boxes and satellite dishes for the reception of cable pay television (ASTRO) services in Malaysia.

The sales and purchase agreement between MBNS and their vendors clearly outlined the option of the promissory note as one of the instruments of payment between buyer and seller with a maturity date of up to three years from the purchase date.

Best practice and innovation:

This deal is an excellent example of innovation, sustainable performance, client centricity and partnership. The solution has the potential to be replicated with other clients and segments across geographies. Deutsche Bank structured an in-depth discussion between all parties and liaised with lawyers, clients, and vendors, and worked with the bank’s internal requirements to execute this deal. Risk mitigation, which was a key to this deal, was achieved through working capital advisory structuring with efficient trade flow and security mechanisms.