Fears that Gilat Satellite Networks (Nasdaq:GILTF) will fail to meet its financial commitments are ham-stringing its business. The Colombian government recently abandoned a tender to install phone and Internet service for 500 rural communities, for which the Israeli company was the sole contender.

The tender was issued through the state-owned company Compartel.

The Colombian press quotes Communications Minister Angela Montoya saying that the decision to withdraw the rural telephony tender, which the government meant to subsidize to the tune of some $43 million, fell after the government studied Gilat's financial and economic situation.

Although Gilat met all the technological requirements of the tender, Montoya said, its internal difficulties could jeopardize its long-term capability to meet its contractual deployment obligations.

Gilat's market cap has sunk to an all-time low of $16.5 million.

Gilat commented that the Colombian project had not been factored into its forecasts and that losing the tender is "no disaster". The company also noted that the Colombian government is due to be replaced in about a week, and that the company is already in talks with the next officials who will be handling the contract.

Some 30% of Gilat's income in 2001 derived from telephony. The company also provides post-software installation services such as maintenance and support.

Meanwhile, Colombia is running another unrelated tender, also through Compartel, to install 2,800 phone lines in rural areas. Gilat will be contending for that contract too, this time against seven other companies. The value of this second contract is estimated at 107 billion pesos about $41.1 million.

The Colombian Communications Ministry told Business News Americas that the two tenders involve different procedures, indicating that the cancellation of the first tender has no implications regarding the second tender.

Gilat's general debt totals some half-billion dollars. Beyond its debts to banks, it owes bond-holders about $350 million, with payments starting in 2005.