Asian cable operator REACH and banks agree on new loan terms

16 April 2003 Hong Kong Lightwave--Australian telecommunications provider Telstra announced that REACH Limited (Hong Kong), the 50/50 Asian infrastructure joint venture with Hong Kong-based PCCW Limited has agreed with its banking syndicate on new terms for its U.S. $1.5 billion loan facility. The new loan arrangement is subject to the finalization of satisfactory documentation.

Apr 15th, 2003

16 April 2003 Hong Kong Lightwave--Australian telecommunications provider Telstra announced that REACH Limited (Hong Kong), the 50/50 Asian infrastructure joint venture with Hong Kong-based PCCW Limited has agreed with its banking syndicate on new terms for its U.S. $1.5 billion loan facility. The new loan arrangement is subject to the finalization of satisfactory documentation.

The key elements of the new arrangements are as follows: Telstra and PCCW will enter into capacity prepayment arrangements with REACH to an amount of U.S. $286 million (U.S. $143 million each). This amount, together with a drawdown from REACH's own cash reserves, will be used by REACH to repay U.S. $300 million of the loan principal (reducing the loan outstanding to U.S. $1.2 billion), and to place U.S. $50 million into escrow for possible future working capital and interest payment purposes. No further scheduled repayments of principal are due until 31 December 2010 at which time the balance will be due in full. The new arrangement also provides for the removal of all financial ratio covenants. REACH will provide security to its banking syndicate but the loan remains non-recourse to REACH's shareholders. Interest on the remaining loan will be set at LIBOR plus 250 basis points (with a step up on 1 January 2008 to 350 basis points unless the loan balance has been reduced to less than U.S. $900 million).

Telstra and PCCW will commit to buying a minimum of 90% of their relevant international capacity requirements from REACH at benchmarked arms length prices until the loan is repaid by REACH. Prior obligations between REACH and the Australian-Japan Cable consortium remain unchanged; and excess REACH cash flow will be shared between the banks (as to 50%), in the form of early principal repayment, and the shareholders (as to 25% each), in reducing the outstanding capacity prepayments after which excess cash flows will be directed to repayment of remaining principal.

These new arrangements provide REACH with the financial flexibility to continue as the leading Asian regional operator for voice and data connectivity services, while enabling a progressive return to improved financial results sufficient to meet the requirements of the new terms within the prescribed seven-year period, according to Ziggy Switkowski, chief executive officer at Telstra.

"Telstra is pleased that REACH and its banks have concluded the revised loan arrangements, which accept the changed circumstances of the industry in which REACH operates," said Switkowski. He reiterated the importance of the REACH operations, telecommunications products and services, and reaffirmed Telstra's support for Dick Simpson, REACH chief executive officer, and his team as they work to compete in this difficult business sector, and lift operating performance.

The consequences of the new loan arrangements for Telstra are as follows: Telstra and PCCW remain 50/50 shareholders in REACH. The contribution by Telstra to the capacity prepayment will be funded from the partial early redemption of the U.S. $190 million converting note Telstra holds in PCCW. The balance of the converting note will then stand at about U.S. $54 million (including capitalized interest) on substantially the same terms as the original. These related transactions mean that there is no new cash outlaid by Telstra to finance these revised arrangements; and the capacity prepayment can be treated as an asset in Telstra's accounts.

"REACH now has an appropriate capital structure to enable it to face the future with confidence," said David Moffatt, chief financial officer at Telstra. Telstra's balance sheet and financial settings are unchanged as a result of these new arrangements.

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