UPDATE 1-360networks stock sinks, debt looms large
(Updates with stock close, details on Moody's downgrade.
Figures in U.S. dollars unless noted)
By Ian Karleff
TORONTO, June 12 (Reuters) - 360networks Inc.
is running out of lifelines as debt payments come due
at the end of the week, customers ink deals with its
competitors and its shares sink deep into penny-stock status,
debt and equity analysts said on Tuesday.
360networks, which scaled back ambitious plans in mid-May
to build a fiber-optic undersea telecoms network in Asia, is
hunting for additional funding to meet a $300 million plus
funding gap, and has yet to declare how this gap will be
bridged.
A company spokeswoman said on Tuesday that "no new updates"
are available as to the funding gap, adding "we're not willing
to speculate on future events."
Analysts said the company is facing a key test of its
financial viability this Friday when an $11 million payment
comes due on its 12.5 percent senior notes. The company has
always said it will pay its debts.
"It's difficult to see what alternatives they would have.
Possibly they could find someone else to put in money. I'm not
sure they could scale back their business any more," said
Jonathan Savas, director of high yield telecommunications
research at Merrill Lynch & Co.
Savas said "it seems highly unlikely anything will
materialize to save the company in the near term", adding the
company is unlikely to be an acquisition target.
"I'm not sure why someone would buy them before
bankruptcy," said Savas.
The company's shares sank a further 32 percent on Tuesday,
falling 32 Canadian cents to close at 68 Canadian cents. They
are well off their year high of C$35.90. On Nasdaq the shares
closed down 21 cents at 45 cents, raising the possibility the
stock could be delisted in the near future as per Nasdaq's
listing requirements.
Analysts said the depressed share price complicates the
company's funding optionsbecause raising cash through a share
issue would be far too dilutive for existing shareholders.
Furthermore, French telecoms equipment maker Alcatel
, while declining to publicly comment, is not expected
to inject more cash into 360networks after writing off the
remaining $500 million of a $700 million investment in the
company two weeks ago. The investment was made as part of a
$1.1 billion contract to build an undersea cable for
360networks linking North America to Japan.
Other potential investors could come from the likes of
Nortel Networks , which is one of 360networks'
major suppliers, and Ledcor, a private Canadian construction
company that spun off 360networks as Worldwide Fiber, and
remains the company's largest shareholder, said analysts,
albeit with little conviction.
DOWNWARD SPIRAL
Last week, Moody's downgraded 360networks' debt rating on
its approximately $2.5 billion of debt, a move that analysts
see as telling because debt rating agencies have very close
relationships with a debt issuer, which basically places them
on an equal footing with an insider.
The downgrade coincided with news that long-distance
carrier Teleglobe Inc., owned by Canadian telecoms giant BCE
Inc. and Broadwing Inc.
.
David Glaymon, an analyst at J.P. Morgan in New York, said
Teleglobe's decision to sign with Williams was probably more to
do with a long-standing relationships between Williams and SBC
Communications -- a 20 percent owner of BCE's Bell
Canada telephone services unit -- than a reflection of
360networks financial health.
"It's not as big a negative for 360 as it appears on the
surface. Williams has an established relationship with
Teleglobe," said Glaymon.
360networks told Reuters on Tuesday that it did not bid on
the Teleglobe contract, despite the fact that Teleglobe is a
current customer of its South American network.
"360networks was not bidding on that business because
Teleglobe required services we could not provide in their
required time frame," said a company spokeswoman.
The major concern right now, apart from customers shying
away from doing business with 360networks, is the firm's
current funding gap, said analysts.
Glaymon said this is 360's "major challenge", especially
considering it needs the cash to fund day to day operations,
rather than for new building projects.
"All of this is feeding upon itself because of the need for
cash. Investors are worried, customers are concerned, and what
will end up acting as a circuit breaker to this perpetual cycle
is the debt. Because, at some point, the debt has to be
serviced," Glaymon said.
($1=$1.52 Canadian)
REUTERS
Rtr 18:50 06-12-01 |
