Iraqi internet service provider FastIraq is to connect more than 100,000 homes and offices to the internet, following the arrangement of funding with Dar Es Salaam Investment Bank (“DES”).
FastIraq was advised by Northern Gulf Partners (“NGP”), which secured finance based on projected cash-flow; this is a significant departure from the traditional requirement to secure debt against assets.
The transaction has widespread implications for other business borrowers in Iraq who seek access to credit, but lack traditional assets, such as real-estate, to provide as collateral for the loan.
FastIraq, one of Iraq’s leading providers of Internet and fiber optic connectivity, has received a senior debt facility from Dar Es Salaam Investment Bank (“DES”), a subsidiary of global banking giant HSBC. Northern Gulf Partners (“NGP”), Iraq’s leading investment advisory firm, served as exclusive financial advisor to FastIraq. This facility represents a landmark transaction that will allow FastIraq, in conjunction with the Iraqi Telephone and Postal Company (“ITPC”), to supply Internet connectivity and dedicated data capacity to Iraqi retail and wholesale consumers, connecting more than 100,000 homes and offices in Iraq.
“The Internet is extremely popular among Iraqi individuals and businesses. Widespread access to fast, high-quality connectivity is key to Iraq’s promising future as a modern economy and the Government of Iraq is committed to the growth of the sector,” said Mr. Kassim Mohammed AL-Hassani, ITPC Director General, Ministry of Communications. “This pioneering transaction between FastIraq and Dar Es Salaam Bank will help to catalyze additional investment in Iraq’s broadband infrastructure,” Mr. AL-Hassani continued.
Iraq’s high-speed internet penetration, at 5%, is low but growing quickly at a rate of 20% annually. Demand for broadband connections is currently about 10 times the supply available, and increasing rapidly as Iraq’s economy improves. Iraq’s 7-8% annual GDP growth is among the world’s highest.
The loan is historically significant, representing a progressive shift in Iraqi credit culture away from traditional asset-based lending and towards a more innovative, cash-flow-based approach to lending. James Hogan, Chief Executive Officer of HSBC in Iraq said, “Through Dar Es Salaam Investment Bank, HSBC is committed to supporting the long-term development of the Iraqi economy. As such, we are keen to help the future growth of a strong telecommunications infrastructure in Iraq through supporting companies such as FastIraq.” The terms of the debt facility were not disclosed.
To help facilitate this transaction, FastIraq and NGP worked closely with DES in order to explain in detail the nature of FastIraq’s business, provide comfort regarding how the loan will be repaid from internally generated funds, and define and agree the necessary security structures required to support the loan. The resulting loan structure, the first of its kind in Iraq, has enabled FastIraq to borrow against the cash-flows underlying its business.
Mr. Tim Moore, CEO of FastIraq, explained the importance of this facility. “It allows a growing business to expand alongside the rapidly improving Iraqi economy and provide services and connectivity to a market with high demand. Without this progressive approach to lending by DES, this may not have been possible.”
The transaction has widespread implications for other business borrowers in Iraq who seek access to credit, but lack traditional assets, such as real-estate, to provide as collateral for the loan. As other banks begin to follow the cash-flow-based lending approach pioneered in Iraq by DES, this development will foster much-needed competition amongst Iraqi banks and open up access to financing for healthy, growing businesses across the country, thus helping to drive economic growth throughout all sectors of the Iraqi economy.
Chris Ruth, Managing Partner of NGP stated, “We are excited to play a role in driving the Iraqi financial services market forward. For international and local investors alike, this innovative transaction represents a highly positive development in Iraq’s banking sector, with increased opportunities for Iraqi businesses seeking expansion capital.
“We are also very proud of the role played by FastIraq, DES and NGP in facilitating additional broadband availability in Iraq. Raising the Internet penetration rate by 10% in Iraq would increase GDP by about 1.5%,” Ruth added.
FastIraq, Inc. (“FastIraq”) operates as a telecommunications provider in Iraq. It was founded in January, 2005 and is a privately held corporation registered with the Ministry of Trade in Iraq. The primary focus of the business was initially to develop communications capabilities in Iraq in support of coalition forces there, and more recently, to provide data capacity and Internet connectivity to Iraqi retail and wholesale customers.
In September, 2009 FastIraq signed a contract with the Iraqi Ministry of Communications (“MOC”), through ITPC, authorizing FastIraq to purchase wholesale fiber-optic capacity from the MOC. This contract was the first contract of its type signed by the MOC and will be instrumental in helping to expand access to data and Internet services in Iraq.
FastIraq, with its US-based affiliate OIFNET, is part of a highly profitable group with a unique record in the Iraqi telecommunications sector. Through an exceptional ability to operate successfully and to deliver service in a challenging environment, the group has built strong, valuable relations with key customers and regulators. For further information please visit www.oifnet.com.
About Northern Gulf Partners
Northern Gulf Partners is the leading investment firm focused on Iraq, with offices in Baghdad and New York. NGP provides world-class standards of investment professionalism in Iraq, linking the best global capital to the finest opportunities in this remarkably promising economy. NGP’s management has been present in Baghdad—outside the Green Zone—and throughout Iraq since early 2003. The firm’s clients, partners and counterparties are the country’s leading business families and most dynamic entrepreneurs.
NGP’s investment philosophy focuses rigorously on three variables: exceptional management, sustainable competitive advantage, and strong market growth potential. The Firm’s asset management investment activities include corporate private equity, alternative long-biased asset management in Iraqi and Iraq-related public securities, and real estate. NGP also provides investment banking advisory services, including corporate finance, mergers and acquisitions, privatization advice and market entry. For further information please visit www.northerngp.com.
About Dar Es Salaam Investment Bank
Dar Es Salaam Investment bank was established in 1998 and began operating in April 1999. DES is one of the leading private-sector banks in Iraq and has been 70% owned by HSBC since October 2005. It is listed on the Iraq Stock Exchange with a market capitalization of approximately US$350 million.
Since its launch, Dar Es Salaam has placed service, integrity, and convenience at the forefront of its operations. Through its inventive approach to banking and quality range of banking products and services, Dar Es Salaam aims to establish itself as an icon of Iraq ‘s strength with a brand name and identity that is tantamount to integrity, progress and quality innovation. For further information please visit www.desiraq.com.
For additional information, please contact Patrick Mitchell at [email protected]