NewSat’s share price has plummeted by more than a quarter after the nascent satellite operator reported a significant rise in half-year losses and was forced to rebuff reports of management largesse.
The company’s stock fell by 37.5% to A$0.10…
NewSat’s share price has plummeted by more than a quarter after the nascent satellite operator reported a significant rise in half-year losses and was forced to rebuff reports of management largesse.
The company’s stock fell by 37.5% to A$0.10 shortly after the market reopened on Monday 2 March having closed at A$0.16 on Friday 27 February. It has since recovered slightly to A$0.12.
NewSat reported its first half fiscal 2015 results on Friday and recorded a 17% year-on-year decline in revenues from A$16.6m in H1 F2014 to A$13.7m. More notably, the company’s net loss had increased by 2393% over the same period, from A$1.6m to A$39.7m, while its LBITDA rose by 4047% to A$37.6m.
The company claimed that the main reason for this substantial jump in losses was the A$33.8m in foreign exchange losses it made. This stems from the translation of the US$ denominated debt backing the Jabiru-1 satellite project into A$ for financial reporting purposes.
NewSat then issued a statement on 2 March to counter a series of claims made in the Fairfax media over the weekend. These included that management had spent almost A$1m on travel in the past two financial years, had failed to deduct tax from bonus payments and had made A$400,000 in undisclosed payments to a Gold Coast yacht company part-owned by NewSat CEO and founder Adrian Ballintine.
In response NewSat said it wanted to “clarify a number of misleading and incorrect statements in such commentary.” It added that it regarded the Fairfax reporting as irresponsible and that it is considering its legal options.
The bulk of Fairfax’s claims stem from a report written by Brendan Rudd in mid-2014. Rudd is the former CFO of natural resources conglomerate BHP Billiton who was brought in as a consultant to review the NewSat’s operations.
Fairfax quoted Rudd as saying, “I have never seen nor heard of more appalling corporate behaviour than at NewSat,” in a memo to the company’s independent directors and a senior executive.
NewSat says that the views of Mr Rudd were considered by its board in the second half of 2014 and that certain matters reported by Fairfax as being the subject of the views of Mr Rudd were found to be without foundation.
It added that the accounting matters, related party transactions and CEO’s salary (which Fairfax claims increased by A$1.5m in 2012) have all been previously disclosed in NewSat’s published accounts.
The satellite operator has seen a significant change in its corporate governance since mid-2014. In June, the company’s three non-executive directors, Mark Fishwick, Andrew Plympton and Brendan Fleiter, resigned.
Two months later, NewSat’s export credit agency financing was suspended due to alleged breaches it made to the terms of the facility after the company secured a A$10m short term loan from its shareholder Ever Tycoon Limited.
As part of the negotiations with its lenders to agree a waiver to the breach, NewSat’s board agreed to implement what it referred to as ‘the Lancaster Report.’ This outlined measure to introduce a more developed corporate governance structure, including new internal frameworks, processes and reporting as well as appoint two new independent directors.
The waiver negotiations also included the appointment of a permanent chief financial officer, with Linda Dillon taking up the role from interim CFO Michael Hewins in September. Hewins had also served as NewSat’s chief operating officer and deputy CEO but left the company late last year.
Waiver negotiations reach pivotal stage
In its H1 results NewSat disclosed it had a net current liability position of A$300m. The majority of that is the loans backing the construction and launch of its Jabiru-1 Ka-band satellite. Both the A$185.4m of export credit agency borrowings and the A$34.5m convertible note are considered to be in default as of 31 December 2014.
This led to the satellite’s manufacturer Lockheed Martin notifying NewSat on 27 January 2015 that it was in default of the construction contract in respect of overdue payments amounting to US$21m. It also issued a termination notice in respect of the contract which subsequently triggered an extended cure period to find a remedy to the default.
On 26 February, NewSat’s launch service provider Arianespace informed the company that it was reserving all rights and remedies with respect to US$42.4m in outstanding invoices.
To fund both of these contracts NewSat has to secure the resumption of its project financing, and in order to achieve this, a revised conditional waiver needs to be agreed with the ECA lenders.
NewSat says that it expects this to be finalised by mid to later March but it is reliant upon raising around US$38.2m in equity or mezzanine financing. While it is confident of achieving this, the waiver negotiations have been ongoing since August 2014 and the pressure to find a solution is greater than ever.
As NewSat noted in its results, its ability to continue as a going concern is dependent on the satisfactory execution of the waiver conditions, including the raising of the required capital.
