Sun, Feb 17, 2002 page7

• Global Crossing's Asian subsidiary delays report

  • NY TIMES NEWS SERVICE
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  Adding to the uncertainty over US-based Global Crossing, its Asian subsidiary announced Friday that it would delay reporting its fourth-quarter earnings by a week.

  The subsidiary, Asia Global Crossing, did not give a reason for the delay, from Feb. 19 to Feb. 26, but analysts said they believed it was related to questions about accounting practices at its namesake shareholder, which filed for bankruptcy protection last month.

  The Securities and Exchange Commission and the Federal Bureau of Investigation are examining how Global Crossing accounted for revenue from swaps of network capacity with other carriers.

  So far, the murkiness is not driving away one of the parent company's would-be saviors, the Hong Kong billionaire Li Ka-shing. A spokeswoman for Li's conglomerate, Hutchison Whampoa Ltd, said Friday it would not rescind its offer, made jointly with Singapore Technologies Telemedia, to buy a controlling stake in Global Crossing for about US$750 million.

  But the spokeswoman, Laura Cheung, stressed the tentative nature of Hutchison's proposal -- noting that no money would change hands until it was approved by creditors, shareholders and bankruptcy court.

  "The letter is conditional on tons of things," Cheung said. "We expressed our interest. That's all."

  Cheung said Hutchison would not comment on the multiple investigations of Global Crossing, which came to light after the company filed Chapter 11 and proposed the buyout by its Asian partners.

  Hutchison's bid may be hobbled by political concerns as well. Global Crossing's bankruptcy filing prompted the US Defense Department to delay the awarding of a US$450 million contract for a high-speed data network connecting its laboratories and research centers.

  Global Crossing originally won the contract last July. But now, members of Congress are questioning whether the military can award such a contract to a company controlled by foreign entities.

  Hutchison is no stranger to such objections: When its shipping arm took over the port operations of the Panama Canal, lawmakers said its Chinese ownership posed a risk to national security.

  Li, who cultivates ties with the Chinese government but whose company is publicly listed in Hong Kong, waved away those questions with only a hint of irritation. Analysts said he would probably regard the concerns about Global Crossing with similar equanimity.

  "They've heard this all before," said Christopher Slaughter, an Asian analyst with Yankee Group, a technology and telecommunications research and consulting firm.

  Slaughter predicted Li would keep his gaze on Global Crossing's assets, which include a state-of-the-art network of high-speed Internet and telephone lines. In Asia, the company's subsidiary owns undersea cables, fiber optic rings, and Web hosting centers in several cities.

  In Hong Kong and Singapore, Asia Global Crossing operates its facilities in joint ventures with Hutchison Whampoa and Singapore Technologies Telemedia, respectively. Singapore Technologies is the No. 2 local phone company in a city-state dominated by the state-owned carrier.

  "By rescuing Global Crossing, it could be that they are trying to protect these investments," Slau-ghter said.

  He also noted that Li had a track record of buying distressed assets and selling them later for eye-popping profits. Most famously, Hutchison reaped a US$22 billion profit when it sold its British mobile-phone operation, Orange, to Mannesmann of Germany, which itself was later bought by Vodafone of Britain.

  In the case of Global Crossing, Li is swooping in at a moment of dire weakness. His proposal is for Hutchison and Singapore Technologies to invest a total of US$750 million for a 79 percent stake -- contingent on writing off the company's US$12.4 billion in debts.

  Creditors would receive the remaining 21 percent of equity, in the form of cash and notes, a 90 percent discount on their loans. Other shareholders of Global Crossing would receive nothing.

  Given the paltry return, some analysts say they expect other bidders for the company's assets to emerge. Bankruptcy court has given the company until August to put a plan together.

  ``This is the beginning of a very long transaction,'' Cheung, the Hutchison spokeswoman, said.
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