Hutch offers a crewcut to Global Crossing

Hutchison and Singapore Technologies full offer for Global Crossing was filed in New York yesterday.

The full details of Hutchison Whampoa and Singapore Technologies joint bid for former US telecoms darling, Global Crossing just became clear, when a public document was filed with the New York bankruptcy court.

Hutch and Singapore Technologies want to buy 79% of the bankrupt US company for $750 million. However, in earlier statements it was not made clear what sort of haircut creditors would have to agree to take on the debt.

Bankers say Global Crossing has around $7 billion of debt that needs to face a haircut. Accordingly, Hutch and Singapore Technologies will offer the banks and bondholders a deal that offers them a small amount of cash plus a strong equity kicker. The offer clearly suggests the debtholders will have to believe in Hutch's and Singapore Technologies management abilities.

Currently, Global Crossing's high yield bonds trade at seven cents on the dollar, while its bank debt trades around 30 cents. Meanwhile in a similar telecoms deal, Level 3 debt holders accepted 15 cents on the dollar. Hutch and Sing Tech are now offering to give creditors $300 million of cash and a 21% stake in the new company.

In return, the company will be debt free. Or not quite, the newco will then issue $800 million of new debt. Back of the envelope calculations (Hutch and Sing Tech's bankers were decidedly uncommunicative) suggest that the creditors 21% stake will be worth around $190 million and with its $300 million that amounts to roughly speaking a half a billion sweetener.

Equity upside abounds, but if you're a creditor staring at your $7 billion of red ink, that is not the most enticing sweetener the world has ever seen. On the other hand, the new enterprise will have a one to one debt to equity ratio.

Should the deal be approved (by April 23), it will end up being another example of Hutchison, in particular, displaying immaculate timing in its telecoms investments. It will have sold Orange's 2G operations at the top and bought Global Crossing at the bottom.

It also has interesting global repercussions. Think back to 1997 and the Asian crisis. Who could have imagined then that a top US telecoms company would be bailed out by two Asian companies - neither of which are Japanese.

The filing makes clear what Hutch and Sing Tech are getting: "Global Crossing owns the world's most populous fibre optic network, spanning over 100,000 route miles and five continents, 27 countries and more than 200 major cities. The market in those cities represent approximately 85% of the world's international telecommunications traffic. The network took four years, multiple acquisitions and partnerships, and billions of dollars of capital to reach its current state of near completion."

Love that last phrase.

Nevertheless, the filing makes clear that Global Crossing has invested $15 billion to get where it is, which makes clear a certain amount of existing-shareholder dis-satisfaction about why management has taken the company to such a sorry state of chapter 11 bankruptcy. Indeed, Global Crossing's irate shareholders may prove a factor. They are upset that a company with $22 billion of assets is being sold at bargain-basement prices and have taken out a lawsuit against Global Crossing CEO, John Legere and hope to derail the deal.

Meanwhile, Hutch and Sing Tech are reasonably well protected against the deal going against them. According to the filing, the companies will receive a combined $40 million if another bidder gets the company instead.

Meanwhile, the debtors of Global Drubbing - as it should be known - will pay a monthly retainer of $150,000 each to Goldman (Hutch's adviser) and Merrill (Sing Tech's adviser) per month, with the final closing date of the offer being September 30th. Then, of course, they get their success fees.

FinanceAsia would like to state for the record that neither of the above banks has been helpful in writing about this situation and contrary to what you would expect post-Enron, two of the corporates involved have been less than forthcoming even though all of the above is public information in the US provided you know how to find it . Corporate governance may be alive and well in Asia but it has many furlongs to go before - for many companies - it amounts to more than lip service.

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