Asia Netcom Snaps Up Asia Global Crossing
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For most of the year, the fate of Asia Global Crossing remained uncertain. But for the first time since its beleaguered majority-owned parent Global Crossing Ltd. declared bankruptcy in January, Asia Global Crossing finally has formed a game plan to ensure its long-term viability.
Asia Global Crossing Ltd. late Sunday announced that it has signed a definitive agreement to sell all of its operations and assets to Asia Netcom, a new company organized by China Netcom that is expected to include Newbridge Capital and Softbank Asia Infrastructure Fund as co-investors.
The deal is significant because it represents the first purchase of a major telecommunications entity outside of China by a Chinese concern. China Netcom was once the nation's monopoly provider of fixed-line local and long-distance phone services and now operates in 10 provinces in the northern section of the country, competing with China Telecom.
As part of the agreement and to facilitate the restructuring process, certain Asia Global Crossing entities on Monday filed for Chapter 11 protection in the United States Bankruptcy Court for the Southern District of New York and coordinated proceedings in the Supreme Court of Bermuda.
Global Crossing, which previously owned 58.9 percent in Asia Global Crossing, echoed those sentiments in its own public statement.
"Asia Global Crossing has said that it will continue to conduct its business as usual while it reorganizes under Chapter 11 and therefore Global Crossing expects that its worldwide operations will also continue as usual and customers will not experience any changes in their service."
Under the terms of the agreement, Asia Netcom will acquire substantially all of Asia Global Crossing's operating subsidiaries, excluding Pacific Crossing Ltd. and related entities. Completion of the transactions is conditioned on, among other things, the approval by the courts in the U.S. and Bermuda as well as certain foreign regulatory approvals.
The deal was made possible after Asia Global Crossing's principal vendors agreed to restructure the obligations owed to them. The new company will assume these obligations as well as customer contracts and operating liabilities of the acquired entities. It is expected that, upon completion of the transaction, approximately US$80 million of residual cash will be retained by Asia Global Crossing to pay its other creditors and to settle certain expenses in the Chapter 11 case and the Bermuda proceeding. No recovery is expected for Asia Global Crossing shareholders.
Asia Netcom will be funded by US$120 million of new equity from the consortium members and additional bank financing, for the future operations of the company.
The agreement follows review and analysis of options available to Asia Global Crossing followed by a several-month sale process conducted by Lazard, Asia Global Crossing's financial advisor. Salomon Smith Barney is the financial advisor to the consortium. The agreement was unanimously approved by the board of directors of Asia Global Crossing. The parties expect the Asia Netcom transaction to close during the first quarter of 2003.
According to industry analyst IDC, revenue from broadband services in China is set to double next year and the Asia-Pacific region remains one of the fastest growing regions in the global telecommunications market. With Asia Global Crossing's pan-Asian subsea system East Asia Crossing, its extensive city-to-city data services platform, and access to China Netcom's extensive mainland network, Asia Netcom will be able to both capitalize on the Asia-Pacific opportunity and capture a large share of traffic originated and terminated in China.
Under U.S. bankruptcy law, it is anticipated that the U.S. Bankruptcy Court, prior to approving the sale, will require that an auction be conducted to permit any higher offers to be submitted. Following completion of the sale, Asia Global Crossing intends to submit a plan of reorganization to the U.S. Bankruptcy Court for the purpose of selling any remaining assets and distributing the value of such remaining assets among Asia Global Crossing's creditors.
The company also announced today that it expects to sell its ownership stake in Asia Global Crossing Taiwan, its majority-owned joint venture in Taiwan, to a U.S.-based investor. Asia Global Crossing Taiwan's customers will, however, continue to have the benefit of the network and service platform that it previously enjoyed and are not expected to experience any impact as a result of this restructuring.