Asia Global Crossing Ltd., a key asset of ailing Global Crossing Ltd., filed a Chapter 11 petition itself Sunday to reorganize its debt and sell its assets to a new venture formed by a Chinese telecommunications company.
The long-expected petition, filed in U.S. Bankruptcy Court in New York, would turn over control of 24,200 miles of a sophisticated underwater high-speed, fiber-optic network to Asia Netcom, created by government-owned China Netcom Communications Group Corp., for $120 million in cash.
Joining in Asia Netcom are venture firms Newbridge Capital and Softbank Corp.'s Softbank Asia Infrastructure Fund. Asia Netcom also would have a $150-million bank line of credit under the deal.
Asia Global listed $2.6 billion in debt and $2.3 billion in assets, both as of Dec. 31.
The deal, if approved by the court, would represent the first overseas investment by a Chinese telecom firm and one of the few investments by any government-run enterprise. Asia Global, based in Bermuda, owns or operates lines connecting eight Asian countries and the United States.
Asia Global was operated mainly out of Los Angeles, but since Global Crossing's bankruptcy filing in January, it has increasingly moved operations to Hong Kong. With few assets left in the U.S., Asia Global doesn't expect to need any federal regulatory approval for the deal. Of Asia Global's 425 employees, 17 are based in Los Angeles and will stay through the transition, which the company expects to complete by the end of March.
"We have been able to achieve our desired objective of ensuring our company's ongoing--and uninterrupted--operations in the future, without compromising customer service," said John M. "Jack" Scanlon, Asia Global's chief executive. "Once approved, this transaction will mark the successful completion of the restructuring process we began in early 2002."
Sunday's filing also is expected to sever Global Crossing's 59% stake that it has maintained in Asia Global since the unit's public offering two years ago. And it will put a major crimp in Global Crossing's available cash, which it needs to fund operations until it can emerge from bankruptcy.
Asia Global's $252 million of cash on hand amounts to about half of the parent company's total $557 million in cash at the end of September. Global Crossing has been running through about $60 million of its cash a month, according to operating statements it files with the Bankruptcy Court.
Also losing big chunks of Asia Global are Microsoft Corp. and the investment arm of Softbank, each of which holds a nearly 15% in the company. Asia Global's stock, traded over the counter, closed unchanged at 5 cents a share Friday. It has lost 96% of its value this year.
Relations between Global Crossing and Asia Global have grown increasingly tense since late last year, when the parent company hired the unit's chief executive and then refused to fund a promised $400 million in lines of credit for Asia Global.
Early this year, Asia Global embarked on a restructuring plan to cut costs and find new investors. It settled with two vendors over $266 million in overdue bills, though terms remained secret. It also raised $120 million in April by selling its share of three joint ventures to partner Hutchison Whampoa Ltd., giving the Hong Kong conglomerate a local phone carrier, an Asian data center and e-commerce operator ESD Services.
Hutchison, run by Hong Kong's wealthiest billionaire, Li Ka-shing, is one of two Asian firms that is awaiting federal and court approval to bring Global Crossing out of bankruptcy. Hutchison and Singapore Technologies Telemedia jointly bid $250 million for Global Crossing, whose bankruptcy filing in January was the nation's fifth largest.
In both deals, analysts say, Hutchison-STT and China Netcom are getting stellar assets for a pittance. And with an abundance of capacity on their systems, they said, the companies can easily swap space to complete worldwide networks.
"Global Crossing spent billions to build the network, and all Hutch has to do is operate it," said analyst Jay Pultz at research firm Gartner Inc. "Basically, it's a free network for Hutchison."
In picking up Asia Global, China Netcom will get a 12,120-mile network of undersea cables that link the largest business centers in Asia. A troubled partnership, Pacific Crossing Ltd., operates two lines that connect Japan to the U.S. But Pacific Crossing also is in bankruptcy, and Asia Global's stake probably will be wiped out. However, both Asia Global and Global Crossing could continue to use the lines under capacity agreements with new owners.
In a statement issued late Sunday, Global Crossing said that its "customers will not experience any changes in their service."
Asia Global has been focusing on selling communications and data services to customers in and around Asia. The company said about 80% of the region's fiber-optic network traffic travels among Asian nations.