NewSat lost nearly a third of its total market capitalisation on Monday with shareholders dumping the stock as the company responded to Fairfax Media reports over the weekend, that revealed evidence of poor governance practices and out-of-control spending at the satellite communications company, with a statement that admitted the board chose to disregard an internal report that made these findings.
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Fairfax Media has reported excerpts from a damning critique of NewSat by former BHP Billiton finance vice-president, Brendan Rudd, who was brought in as a consultant to review the company's operations last year by two of its then high-profile independent directors, former St Kilda Football Club president Andrew Plympton and Australia Post deputy chairman Brendan Fleiter.
Mr Rudd's review, which was provided to NewSat's biggest lender, the US Ex-Im Bank, identified numerous $10,000 dinners, a "complete lack of control" on expenditure related to overseas travel, and raised questions about executive salaries and benefits.
In a statement released to the Australian Securities Exchange on Monday, signed by NewSat chief executive Adrian Ballintine and chief financial offficer Linda Dillion, the company admitted it had chosen to ignore Mr Rudd's damning findings.
"The views of Mr Rudd were considered by the NewSat board of directors in the second half of 2014. Certain matters reported in the Fairfax media as being the subject of the views of Mr Rudd were found to be without foundation," the statement read.
NewSat's statement to shareholders on Monday also responded to reports that one of its major clients, TrustComm, has served it with a civil suit in a Virginia court in the US seeking $10 million, saying that this was "incorrect", as the suit had been "filed" rather than "served". The NewSat statement dismissed TrustComm's action as a "negotiating tactic".
NewSat, which declined to respond to questions last week, said it "regards the Fairfax Media reporting as irresponsible and is considering its legal options".
Shares in NewSat dropped 30 per cent to 10.5¢ on Monday. It was the busiest trading day in the stock in more than a year.
NewSat's share register is tightly held and dominated by related entities, employees and directors. Of the handful of minor shareholders who Fairfax Media was able to contact on Monday none wished to comment publicly. One described the company's response to the Fairfax Media reports as "embarrassing" while another said they were "underwhelmed".
Credit Suisse analysts ceased coverage of NewSat in June 2014 citing concerns about the company's debt funding and governance.
