The South African government decided that it should incorporate the technical staff and expertise of the country’s microsatellite (and related systems) design and assembly company Sun Space and Information Systems (SunSpace) into the South African National Space Agency (Sansa) because Pretoria was not persuaded that the company could stand on its own feet.

This emerged in a written answer from the Minister of Science and Technology, Derek Hanekom, to a question by Democratic Alliance MP and Shadow Minister of Science and Technology, Dr Junita Kloppers-Lourens, which was released on Tuesday.

“Government decided that an acquisition in SunSpace should be made contingent on the private shareholding of SunSpace presenting a viable business case for the long-term sustainability of the company,” stated Hanekom in the answer.

“In terms of this decision SunSpace directors were given an opportunity to make a business case for the long-term sustainability of the entity. The business plan did not convince [the] government that SunSpace would have been able to be sustained without significant long-term government  funding.”

The government’s insistence on the company’s current shareholders providing a credible business plan was the result of a consideration of the views and assumptions made in two separate reports, one by Deloitte (the South African member company of the global Deloitte Touche Tohmatsu group) and the other by consultancy company Savant Analytic.

In his answer, Hanekom reported that Deloitte had proposed three options – not to invest in SunSpace, risking the loss of the company and its expertise; taking control of the company by acquiring a 90% stake; or absorbing the company’s technical staff into Sansa.

“The Deloitte report recommended that DST [Department of Science and Technology] considers investing in SunSpace through a Newco structure as SunSpace was technically insolvent and such a structure would minimise the risk of assuming unknown liabilities,” he stated.

The report by Savant Analytic opined that, amongst other things, the profitability of SunSpace was dependent upon an assumption that its new business would grow by almost 95% in comparison to its 2011 performance, through winning considerable new business from 2012.

“It also expressed the view that an efficient restructuring of an investment would enable the South African government to get value for the investment without unfairly rewarding the existing shareholders in the short term whilst providing a range of beneficial exit mechanisms in the medium to long term,” reported Hanekom.

“Based on some of these assumptions, the report expresses a view that the business case for the investment into SunSpace is sound and holds many direct and indirect socioeconomic and geopolitical benefits to the country.”