Global Crossing denies Asian unit $400 million loan

Global Crossing has denied its Asia Global Crossing subsidiary a $400 million loan that had been part of a previously negotiated credit facility.

A spokesman for Global Crossing, which owns about 59% of Asia Global Crossing, said the company simply determined that it was “not prepared to make a loan under the credit facility at this time.” Another spokesman said, “Global Crossing is not going into the details on the issues involved.”

Pat Comack, telecom analyst for Guzman & Co., said shareholder pressure forced Asia Global Crossing’s board of directors to request the loan in order to get as much cash on the books as possible. Comack said Global Crossing was under no legal responsibility to make the loan and believes no animosity was created by its decision to deny the loan.

“The credit facility is more like a line of credit than a loan, and banks pull credit lines all the time,” he said. “Global Crossing simply doesn’t think it’s in any position to be loaning money right now. They need cash, too, to satisfy their investors and keep their own balance sheet in good shape. They also don’t think Asia Global Crossing needs the money right now.”

Comack acknowledged the loan denial is fueling speculation that Global Crossing is on the precipice of bankruptcy. While bankruptcy is a possibility for the struggling company, he doesn’t think it is imminent. However, Comack acknowledged that Global Crossing would be hurt by its decision to deny the loan, at least over the short term.

“This will reiterate for them [critics] that Global Crossing is going under,” he said. “It says Global Crossing needs the money, and it’s going to indicate to some that this is a company in distress, and that’s not good for getting customers. People are going to read into this some negative things, but that’s been going on for a while.”

Vik Grover, senior analyst for Kaufman Bros., agrees bankruptcy isn’t in the immediate future for Global Crossing. He said the company has a $2.4 billion pro forma balance sheet heading into the fourth quarter, thanks in part to the sale of its IPC Trading Systems units.

Those units were sold to an investment group led by Goldman Sachs for $360 million in a deal announced yesterday and the carrier isn’t done dealing, Grover said. Global Crossing is actively looking for a buyer for its undersea cable unit and believes it could fetch $900 million to $1 billion, he said.

Global Crossing is well positioned with its Asia Global Crossing unit--described as an important “pivot point”--as the region continues to demonstrate “strong pricing and fat demand” for high-bandwidth services, Grover said. As evidence, he noted the new Asia Pacific Cable Network 2--a 19,000-kilometer submarine cable built by a consortium of 26 telecommunications companies connecting Japan, China and other countries in Southeast Asia--that went live yesterday.

In addition, Grover said there is no lack of interest in the company.

“[Hong Kong billionaire] Li Ka-shing may step up at some point, and Deutsch Telekom is always rumored to be a suitor,” he said. “The story isn’t over yet for Global Crossing.”