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.
In a press statement, Asia Global Crossing said operations will continue
uninterrupted during the reorganization, Customers will not experience
any change in service. Asia Global Crossing also said its management team and
employee base will remain in place and will continue towards the company’s
objective of providing cost-efficient network infrastructure and data
communications services to enterprise and carrier customers throughout Asia.
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.