Global Foresees Few Problems Over Filing
Global Crossing Ltd. said Monday that the Bankruptcy Court filing of its majority-owned subsidiary, Asia Global Crossing Ltd., will have “no material impact” on its cash position, operations or ability to emerge from its own Chapter 11 proceedings as a healthy telecommunications services provider.
Global Crossing said it still expects to win government approval for a plan to sell control of the subsidiary to two Asian companies and to emerge from bankruptcy proceedings by the end of April with its major network -- which serves North America and Europe -- intact. “We don’t anticipate that this [Asia Global] filing will have any effect on Global Crossing’s emergence from Chapter 11,” said company spokeswoman Tisha Kresler.
Asia Global filed a bankruptcy petition late Sunday as part of a plan to sell itself to a new company formed by China Netcom Communications Group Corp., which is owned by the Chinese government. That wiped out Global Crossing’s 59% stake in Asia Global.
Asia Global long had been considered a key asset in completing the overall Global Crossing network, which was dreamed up by Los Angeles financier Gary Winnick. But the unit lagged in building its network connecting eight Asian countries and became a drain on the parent company. It provided only 6% of Global Crossing’s total revenue in September, but accounted for 22% of the total loss.
With Sunday’s filing, the parent also lost any chance to recoup $252 million in available cash that the unit had at the end of September. That represented 45% of Global Crossing’s reported cash on hand.
Kresler said Global Crossing had not been counting on Asia Global’s cash to help pay its own bills. At the end of September, the parent company had $305 million in cash plus $326 million in restricted cash, earmarked for paying creditors. Global Crossing went through $57 million that month, but Asia Global Crossing accounted for more than 40% of it.
Analysts said Global Crossing’s main business in North America and Europe will leave plenty of opportunity for prospective new owners Hutchison Whampoa Ltd. in Hong Kong and Singapore Technologies Telemedia, who hope to buy Global Crossing out of bankruptcy. The company has had no trouble buying capacity on transpacific and Asian lines and should be able to continue serving customers in the region.
The scale of Global Crossing’s original business plan, analysts added, was far too grand and needed to be broken up into independent, manageable pieces. What’s more, capacity swaps and other inside transactions between parent and subsidiary “were not commercial in nature,” said Berge Ayvazian, vice chairman of the Yankee Group research firm in Boston.
Separately owned companies working together will provide a better business framework for developing a worldwide network, he said.
Max Smetannikov, an analyst at Current Analysis in Sterling, Va., figures that once Hutchison Whampoa and Singapore Technologies win approved from U.S. officials to buy bankrupt Global Crossing, they will be able to work closely with Asia Netcom.
Hong Kong billionaire Li Ka-shing, who controls Hutchison, is on close terms with China’s political leaders and can work easily with Asia Netcom for access to some 200 cities in eight Asian countries.
Ayvazian also said that if Hutchison doesn’t buy Pacific Crossing, which owns the cables connecting the U.S. to Japan, it probably will influence the selection of the eventual buyer.
In its filing Sunday, Asia Global said that it will sell its assets to Asia Netcom Corp. and that China Netcom will invest $120 million in the company and arrange for $150 million in bank debt financing. China Netcom also is expected to bring in two other investors.