Li to control fast lane
Hong Kong iMail; Jan 30, 2002
BY KAREN CHAN
LI Ka-shing's family will control most of the high-speed capacity in Asia if Hutchison Whampoa and Singapore Technologies' (ST) joint bid to buy a stake of up to 80 per cent of loss making Bermuda-based telecommunications company Global Crossing is approved.
The three major operators of fibre-optic networks in the region are Global Crossing, C2C, which is owned by ST, and Level 3, which is jointly owned by Li Ka-shing's son Richard through Reach _ a joint venture between Pacific Century CyberWorks and Australian telecom Telstra.
''If the deal is completed, we will have between 70 and 80 per cent. It's a reasonable investment,'' Hutchison managing director Canning Fok said yesterday.
Hutchison and ST have, according to reports, signed a letter of intent with Global Crossing, which on Monday sought protection from its creditors in the fourth-largest Chapter 11 bankruptcy filing in United States history, listing debts of US$12.4 billion (HK$59.52 billion).
Fok said Global Crossing had submitted a debt restructuring proposal, which will be heard by the US courts within four days.
However, he said the two firms had yet to decide the exact size of their stake but reports said it could be up to HK$5.85 billion. Fok said it would all depend on Global Crossing's debt restructuring. The stake would be shared equally between the two companies.
The reorganisation plan, which will wipe out the holdings of Global Crossing's common and preferred shareholders, must win bankruptcy court approval by the end of August. Competing bids for the one-time high-flier could still emerge, analysts said.
Shares in Hutchison surged 4.17 per cent to close yesterday at HK$75 in a broad market rally, but are off some 31 per cent over the past year as of Monday's close, largely on worries over its heavy exposure to third-generation (3G) mobile telecoms. ST has a small stake in Global Crossing's subsidiary Asia Global Crossing and controls StarHub, Singapore's No 2 telecoms company, as well as the city-state's monopoly cable TV firm.
Global Crossing operates a 27-country fibre-optic network, selling telecommunications services to large firms and other telecommunication's carriers. It borrowed heavily to construct the network and acquire other carriers but huge debts ultimately proved overwhelming.
Analysts said Hutchison Whampoa had picked up a quality asset at what initially appeared to be a bargain price. With Hutchison's penchant for asset-trading, it might ultimately look to sell the Global Crossing assets, perhaps in pieces, ING Barings analyst Cusson Leung said. One Singapore banker said: ``What they are offering is quite a severe haircut for the creditors. So there may be some resistance. There could be better offers as the company stays under Chapter 11.'' Among Hutchison's ties to Global Crossing is a US$400 million bond it issued to the carrier that is convertible into Global Crossing preferred shares at US$45 apiece. Expecting that Hutchison will write off the credit, ING Barings' Leung slashed his 2001 Hutchison profit forecast by 27 per cent to HK$8.6 billion.
Global Crossing shares lost 96 per cent of their value in the last year and closed at 51 US cents on Friday. The stock reached US$64.25 in May 1999. Asked about the bond, Hutchison's Yong said: ``We're confident that when the court approves a restructuring, we will see a satisfactory return on our total investment.'' Hutchison also holds 1.4 per cent of Asia Global Crossing, which is 58 per cent-owned by Global Crossing. DBS Vickers Securities analyst Winnie Chiu said the deal looked positive as Global Crossing's infrastructure gave Hutchison access to a comprehensive undersea fibre-optic network while generating synergistic benefits with its 3G business.
Patrick Pong, an analyst at South China Brokerage, said the proposed acquisition should not impose a heavy financial burden on Hutchison. He said the deal would increase Hutchison's net asset value (NAV) by US$1.7 billion, or HK$3.10 per share, based on Global Crossing's NAV of US$6.9 billion as at of September, 2001.
Global Crossing has US$22.44 billion assets and US$12.39 billion debt, according to the bankruptcy filing.
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