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Why the SKY and Space Global Ltd share price has crashed lower today

One of the worst performers on the local market during trade on Tuesday has been the SKY and Space Global Ltd (ASX: SAS) share price.

In late morning trade the global communication infrastructure company’s shares are down 16% to 13 cents after emerging from their trading halt.

Why have SKY and Space Global’s shares been crushed today?

This morning the company’s shares returned to trade following the launch of a capital raising late last week.

According to the release, SKY and Space Global has received binding written commitments for 83,333,333 ordinary shares at 12 cent per share to raise $10 million before costs from sophisticated and professional investors.

A further $5 million will now be raised through a fully underwritten share purchase plan at 12 cents per share.

The capital raising was undertaken by boutique corporate advisory and venture capital firm Chieftain. Which management has pointed out has SKY and Space Global director Brett Mitchell on its board and as a shareholder.

It has stressed that the 6% commission on all funds raised that Chieftain will receive is “an industry standard fee and negotiated on arm’s length commercial terms”.

What will the funds be used for?

Management has advised that proceeds from this capital raising will be used mainly for the completion of design, construction, and launch costs of the first batch of approximately 20 Pearl nano-satellites which will be part of its equatorial constellation.

The full constellation is scheduled to be completed by end of 2020, comprising approximately 200 Pearl nano-satellites covering the equatorial belt and providing narrowband communication services across large parts of Asia, Central Africa, and Central/South America.

Should you buy the dip?

I think that SKY and Space Global’s equatorial constellation does have the potential to generate significant revenues in the future if all goes to plan. However, there is a long road ahead and it will be some time before meaningful revenue is generated.

In light of this, I would still choose traditional telco companies such as TPG Telecom Ltd (ASX: TPM) and Telstra Corporation Ltd (ASX: TLS) ahead of it for the time being.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited and TPG Telecom Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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