Global Crossing Ltd.'s Asian unit, the company's most valuable operation, is struggling with financial woes that could threaten the bankruptcy reorganization of its parent.
Asia Global Crossing, which is 59% owned by Global Crossing, saw its stock delisted Thursday by the New York Stock Exchange, a day after a major downgrade of its debt by Standard & Poors Corp.
On Tuesday, the company warned that its auditor, Andersen, will probably express "substantial doubt" about the company's ability to remain in business. On Wall Street, that pronouncement often is seen as a precursor to a serious development, such as a bankruptcy or buyout.
Asia Global Crossing is trying desperately to raise money. The company said Tuesday that it expects to report a "material loss" for 2001, and that it may have to write down the value of some of its assets.
Its cash crunch significantly worsened in December, after Global Crossing refused to honor its pledge to provide a $400-million line of credit. In January, Asia Global hired financial advisor Lazard Freres to drum up potential suitors.
"We have already received a number of inquiries from potential investors," said interim Chief Executive Jack Scanlon.
Buyers, including other telecommunications companies, financiers and investors, "are looking at this and saying this could be a heck of a steal," said Sanjay Jindal of Chanin Capital Partners, a Los Angeles investment banking house that is advising the unsecured creditors committee in the Global Crossing bankruptcy. Potential deals could include the entire company or parts of it.
Many analysts believe Global Crossing's most valuable asset is its stake in Asia Global Crossing, which is smaller, but operates fiber-optic lines in the Far East, where there is less competition and more potential for growth.
Asia Global's problems were anticipated by the two Asian companies that have a pending bid to acquire a 79% stake in Global Crossing for $750 million. Hutchison Whampoa Ltd. in Hong Kong and Singapore Technologies Telemedia would have to be satisfied with the status of Asia Global Crossing and any restructuring of the operation, Jindal said.
"They're smart buyers," he said. "They know that one business is dependent on the other, and they want all the pieces to stay whole."
Hutchison and SingTech have participated in partnerships with Asia Global Crossing. Their bid for Global Crossing is expected to be followed by others.
The two firms are inextricably linked by Global Crossing's majority ownership, but they also share office space in Beverly Hills, have overlapping boards of directors, and, at one point last year, the companies shared a CEO.
The two firms proposed a merger, but the idea was quashed in November amid concerns the relatively healthier Asia Global Crossing would be hurt by the marriage.
Asia Global Crossing has been tainted by allegations that its parent company used misleading accounting methods to boost revenue. The accusations have been aimed primarily at parent Global Crossing, but Asia Global Crossing used the same accounting methods and is under suspicion too.