Sunspace absorption a 'slap in the face'

Government's decision to explore the absorption of satellite company Sunspace is not equitable, says the company's MD, Bart Cilliers.

Cabinet, in March 2011, approved a controversial majority equity of between 55% and 60% stake acquisition in Sunspace by government, which will see Sunspace lean on government to fill its order books, at an estimated cost of R100 million.

Deputy director-general: research, development and innovation at the Department of Science and Technology (DST), Val Munsami, explained that the initial approval was pending the tabling of the business case at Cabinet. The business case involved a full audit.

Cabinet yesterday announced it received and accepted the outcomes of the investigation on the acquisition and it approved the holding of negotiations by the South African National Space Agency (SANSA) to explore the absorption of the core capability of Sunspace into SANSA.

"This will ensure the strengthening of satellite and manufacturing capability within SANSA," said the Cabinet statement.

However, Cilliers says there are still several questions that need to be answered.

He explains that, in April 2009, Sunspace directors were verbally informed by Cabinet that government would acquire a majority equity stake in Sunspace and would provide interim financial support, while government due process was being executed.

"Does this new decision imply that the department is simply walking away from the 23-month salary arrears incurred by the personnel and the guarantees provided by the shareholders in keeping the capability intact, while the government decision-making process was being executed following assurances of sustaining Sunspace by the minister in Parliament in March last year?"

Cilliers has posed several questions to the DST and Sunspace, and awaits clarity. The company would also like to know the timescales for starting negotiations.

Cilliers notes that it took 10 years-plus and R5 billion with assistance from a foreign partner to establish satellite company Houwteq, which was shut down in 1994, and it took Sunspace 12 years since its inception in 2000 to get where it is today.

"SANSA currently has zero satellite engineering capability, no track record and also no satellite engineering processes and facilities. It will again take SANSA 10 or more years to start again from scratch, even in the unlikely event that they would do so with existing Sunspace staff."

Cilliers also says the move to absorb the company is even less understandable in the light of the concluding recommendation by Savant Analytic, which was commissioned by SANSA to provide a professional evaluation of the viability of the Sunspace business plan and desirability of the proposed equity acquisition.

The report said the business case for the investment into Sunspace is sound and holds many direct economic and indirect socio-economic and geopolitical benefits to the country.

It also said the efficient structuring of the investment will ensure that government gets excellent value, without unfairly rewarding the existing shareholders in the short term and providing a range of beneficial exit mechanisms in the medium to long term.

Based on this report and on one by Deloitte, the SANSA board passed a unanimous resolution recommending the DST implement the equity transaction with Sunspace, at its October 2011 board meeting.

"The mystery deepens further in understanding why a unanimous recommendation to implement the proposed transaction made by the board was simply swept aside by DST. This could certainly appear to be a slap in the face for the SANSA board appointed by the minister," says Cilliers.

Sunspace developed SA's second national satellite, SumbandilaSat, with which contact has been lost for a considerable time.

The company previously told ITWeb an investment by government would help pad its capital-intensive business.

Executive director Ron Olivier said the company's primary need for a government investment is more a reputational issue than a financial one.

He explained that, while it does need a financial boost, it would as easily accept a government endorsement as a financial investment. "Unless government has a hand in the business, many people question the longevity of industry players."

Former Democratic Alliance shadow science and technology minister Marian Shinn said there are two main problems with the acquisition. The first is that SA cannot afford to build and launch its own satellites yet and, secondly, Sunspace has failed to provide a highly-successful vehicle for this so far.

"If substantial offshore and local investors have declined to become shareholders in space manufacturing, what is the compelling reason for our taxpayers to do so?"