What? Shares in small-cap satellite company Newsat Limited (ASX: NWT) fell 22% in early trade on Tuesday after the company provided the second company update in as many days. The previous update, released on Friday last week, casually mentioned that discussions were ongoing between Newsat, key construction contractor Lockheed Martin and Newsat's financiers about the funding required for the construction of Newsat's Jabiru-1 satellite. The company said that it would update the market on developments with the lenders as appropriate.
As it turned out, developments over the weekend (presumably) forced Newsat to update the market on Tuesday.
So what? Newsat has advised shareholders that progress payments to Lockheed Martin for Jabiru-1 have become overdue as a result of the ongoing discussions with financiers to recommence funding. The company now expects that up to $60 million in additional equity will need to be raised, which would significantly dilute existing shareholders in the $90 million company.
Newsat understands that Lockheed Martin is continuing with construction of the satellite, however doubts have now emerged about what impact a late delivery will have on financing. In a somewhat farcical chicken and egg scenario, the financiers are holding back on finance because they are concerned about a potential extended delay to the project if the satellite is delivered late from Lockheed Martin, who won't deliver until they are paid.
Jabiru-1 is currently scheduled for completion in Q1 2016, which will allow it to be launched in the proposed March to May 2016 launch window. Missing this window would presumably be disastrous for the company and less-than-ideal for long-term shareholders.
Now what?
It would take a brave investor to buy Newsat shares at the moment. Newsat has the potential to be a great long-term income generating stock when Jabiru-1 is launched and this period was always going to be the riskiest time to own the stock. When funding is reinstated and any equity raising is complete may be the ideal time to buy.
