Australian satellite operator NewSat has revealed that the financing for its Jabiru-1 satellite project has been suspended until it secures a waiver for breaches it made to the terms of the facility.
In a letter to the Australian Securities Exchange,…
Australian satellite operator NewSat has revealed that the financing for its Jabiru-1 satellite project has been suspended until it secures a waiver for breaches it made to the terms of the facility.
In a letter to the Australian Securities Exchange, interim chief financial officer Michael Hewins said the US$10m unsecured short term loan that it borrowed from Ever Tycoon Limited on 12 July allegedly breached certain technical or documentary covenants in the US$399m export credit agency-backed financing that is funding the construction and launch of Jabiru-1.
NewSat is currently in discussions with the ECA lenders to agree the terms and conditions of a formal waiver.
The company said that, once certain of these conditions have been agreed and satisfied, “the financiers will permit funding the project out of cash reserves set aside for the project as well as funding the company’s approved teleport expenses”.
Debt funding of the project will then recommence upon satisfaction of all the terms and conditions of the waiver.
NewSat expects the conditions of the waiver request to include a requirement for additional equity funding and the appointment of both a new chief financial officer and new independent directors.
The satellite operator said it is currently in final negotiations with a preferred candidate for the CFO role and is also close to announcing new independent directors.
As for the further capital injection, NewSat expects it to amount to 6% of the total US$620m Jabiru-1 project value, equating to US$37.2m.
Lockheed Martin is currently constructing Jabiru-1, which is based on Lockheed’s A2100 platform and will feature 50 Ka-band high-powered transponders. The satellite is due to be launched by Arianespace in 2015.
NewSat secured the US$10m 11% 6-month loan in July to support its teleport business as well as cover the costs associated with its ongoing restructuring strategy. The lender, Ever Tycoon, is a related party of NewSat director and shareholder Ching Chiat Kwong.
As part of the arrangement, NewSat agreed to amend the US$30m subordinated convertible PIK note that Ever Tycoon provided as part of the equity and mezzanine funding that was required to secure the ECA-backed facility.
Blames negative reporting for share price plummet
NewSat’s letter to the ASX was in response to a request by the stock exchange to explain a sudden drop in the company’s share price on 31 July.
The stock fell 27% from A$0.26 at close on 30 July to an intra-day low of US$0.19 the following day. It has since fallen further and closed at A$0.145 on 4 August.
NewSat put the fall down to an article in Australian subscription investment website Eureka Report published on 30 July. In his letter, Hewins noted that the article contained “negative commentary on the company, its corporate governance, capital structure and earnings expectations”.
He added: “The company disagrees with the commentary but considers that the negative sentiment in the article has led to selling in the market.”
The ASX price query was the second one that NewSat has received in the past couple of months. The exchange sent a similar letter in mid-May, but NewSat stated in its response that there was nothing it had announced that could explain the trading in its securities.
However, in early June NewSat gave a trading update in which it stated that its core teleport business was facing challenging market conditions. It pointed to the loss of contracts from a key partner to the US government – a result of the withdrawal of troops from Afghanistan – and declines in economic activity across the military, mining, oil and gas sectors.
This led NewSat to revise its earning expectations for 2014, with the company currently expecting to report FY2014 revenue from ordinary activities of between A$30m – A$33m, and a net loss in the range of A$5m-A$6m.
In response, the company said it had commenced cost reductions across its teleport business. This restructuring strategy led to NewSat securing the loan from Ever Tycoon in July, which has since forced the suspension of the Jabiru-1 financing.
